Rank Group returns to operating profit in full year 2021/22 as Covid impact softens
The Rank Group returned to operating profit in the year ended 30 June 2022 as net gaming revenue (NGR) more than doubled year-on-year to £644m.
That NGR came mostly from the firm’s land-based operations – including the UK’s Grosvenor Casino and Mecca Bingo brands – as the segment generated £460.7m, or 71.5% of the overall total.The figures represent growth of more than 200% in land-based NGR, as that part of the business generated just £148.9m in the Covid-impacted 2020/21 full year.
However, NGR in the land-based segment continues to lag behind revenue for calendar year 2019 – the last pre-Covid comparable period available – during which time the business generated £571.4m, some 24% ahead of the latest figures.
Overall group NGR is also still behind pre-covid levels, with the £644m underlying NGR coming in around 10% lower than the £715.4m generated in 2019.
Digital revenue was higher this year than both the prior-year comparative period and pre-covid revenue in 2019, however. The online segment generated £183.3m in the 12 months to 30 June 2022, 3.9% ahead of the prior year and 27.3% ahead of 2019.
The overall year-on-year revenue increase helped Rank narrowly exceed its previously issued operating profit guidance of £40m, as the actual figure totalled £40.4m.
Growth was driven by stronger performance in the first half of the year than the second, with H1 accounting for £24.1m in operating profit and H2 just £16.3m, in part as a result of the Omicron variant of Covid-19.
Still, this represented a significant turnaround for the business, which declared an operating loss of £82.4m in the prior-year period, and shows it is on its way to recovering pre-Covid levels of profit.
There is still a long way to go for a full recovery, however, as 2019 saw the business declare £104.2m in operating profit, more than double that of the latest reporting period.Following the end of the period, Rank said its upward trend continues, as the firm reported that in the first seven weeks of 2022/23, overall underlying NGR is trending 3% ahead of the prior year. Digital NGR is currently ahead around 7% with venues down 1%.
The business said that trading conditions are likely to remain challenging in the coming months due to prevailing macroeconomic conditions including rising inflation and energy prices impacting customer spend and operating margins.
Rank Group CEO John O’Reilly: “Whilst we have been seeing improvements in London in recent weeks, the trading environment across the UK is likely to remain difficult in the months ahead with inflationary pressures squeezing consumer discretionary expenditure and cost increases, particularly in energy prices, putting pressure on profit margins.”
“It was a challenging year for our UK venues businesses, with unexpectedly softer trading across the Grosvenor estate in the second half of the year,” said Rank Group CEO John O’Reilly.
“Our nine London casinos, which account for over 38% of Grosvenor’s revenue in normal trading conditions, have seen very weak customer volumes with overseas visitors few in number, and only starting to return in the final few weeks of the year.
“Whilst we have been seeing improvements in London in recent weeks, the trading environment across the UK is likely to remain difficult in the months ahead with inflationary pressures squeezing consumer discretionary expenditure and cost increases, particularly in energy prices, putting pressure on profit margins.”
To combat this, O’Reilly said the business is taking action to drive further efficiencies in its land-based businesses, while the transfer of Rank’s digital brands to the firm’s proprietary technology platform is supporting revenue growth in the online segment.
Commenting on the upcoming government review of the UK’s 2005 Gambling Act – which is expected to bring several benefits to land-based operators in the country – O’Reilly added that Rank expects to be well positioned to benefit from the review when it concludes.
London-based investment bank Peel Hunt reiterated its Buy recommendation and 175p target price for the stock.
“Digital is showing good progress and London customers are returning to Grosvenor,” said Peel Hunt analyst Ivor Jones. “However, ex-London Venues customer numbers are slower to recover and there are cost pressures. In particular, FY23E energy costs would be £46m at current spot prices (up from £23m in FY22).”