Shares in Grosvenor Casino and Mecca Bingo operator the Rank Group fell by more than 9% in early trading (16 December) after the operator released a trading performance report for the five months ended 30 November 2022.
Across the group, like-for-like NGR came in flat at 1% year-on-year during the five-month period, reflecting growth across Rank’s Mecca, Enracha and Digital assets, although this was offset by a decline in revenue from its Grosvenor Casino venues.
The operator said while there had been some improvement in trading in recent weeks, its financial Q2 (three months ending 31 December 2022) trading has been “weaker than expected,” with weekly average NGR of £5.8m just slightly ahead of the figures in Q1.
In particular, the effects of the FIFA World Cup, combined with unusually cold weather in the UK and the ongoing cost of living crisis, have caused lower visitor numbers in Grosvenor venues, while Rank has also seen a lower average customer spend per visit.
Mecca customer visit numbers were up 4% on the previous year, meanwhile, with the brand showing Q2 weekly average NGR in line with Q1.
Rank’s Enracha venues in Spain continued to perform strongly, it said, with NGR up 27% as its Spanish customer base was not facing the same financial pressures as those in the UK.
The operator’s Digital business segment continued to deliver good growth, it added, with NGR up 11% as a result of 10% growth in the UK – driven by the successful migration of Grosvenor’s online offering onto Rank’s proprietary technology platform – and 13% growth internationally, aided by the YoBingo and YoSports brands in Spain.
Grosvenor growing pains
Rank said Grosvenor venues had shown signs of improvement in recent weeks and that there are “robust” plans in place to drive revenue for the brand.
However, Grosvenor’s return to growth will take longer than previously expected due to challenges presented by macroeconomic conditions, Rank said.
Not least of those conditions is rising inflation and associated increases in operating costs, especially impacting expenses such as energy bills and employee salaries.
Rank said that total known cost increases for the year remained broadly in line with its expectations, with around £50m in expected extra costs relating to wage inflation, energy inflation and other price increases.
Rank now expects group like-for-like underlying operating profit for the year ending June 2023 to be in the range of £10m-£20m, with the main variable within that range being the performance of Grosvenor venues.
Rank’s underlying operating profit for financial year 2022 was £40m.
Rank Group CEO John O’Reilly: “Weak consumer confidence and pressure on disposable income is resulting in a tougher than expected trading environment for our UK venues businesses, particularly in Grosvenor, where we are seeing customers spending less per visit.”
“Due to the high operating leverage within Grosvenor, and its relative importance to the group as a whole, movements in its NGR will have a significant impact on the group’s operating profit for the year,” warned Rank in a statement.
Rank CEO John O’Reilly added: “Weak consumer confidence and pressure on disposable income is resulting in a tougher than expected trading environment for our UK venues businesses, particularly in Grosvenor, where we are seeing customers spending less per visit.
“Whilst we expect these challenges to continue to impact our recovery into the second half of the financial year, we have implemented a series of measures to deliver incremental cost savings and to drive revenues.
“We remain committed to our roadmap of investing in initiatives that will ensure the long-term recovery and prosperity of the group. These include delivering new products in our UK venues, enhancements to the design and facilities of some of our casinos and upgrades to the table gaming and electronic offering.
“Our digital team is now fully focused on delivering the improvements available to our UK and Spanish business following the successful migration of all our brands onto our proprietary platforms.”
Delay or defeat?
Off the back of the trading update, investment bank Peel Hunt has lowered its underlying operating profit forecast for the business from £43m to £14m, and its EBIT forecast from £65m to £44m.
Regulus Partners: “Unless customers are prepared to spend more on gaming overall, something has to give, and it appears to be giving in the land-based casino market as well as in higher spending bingo customers – the market and segment which happen to have the closest demographic overlap with higher spending online customers.”
For Peel Hunt, the trading update reflects “a delay not a defeat”, and while it pushes back its forecast of Rank’s recovery by a year, the bank reiterated its Buy recommendation and 90p target price for Rank shares.
Regulus Partners, meanwhile, took a less positive view of the update. It said Rank’s performance showed that the UK’s land-based casino sector was the most vulnerable area of the gambling market.
It pointed to slow growth in the UK market in recent years, alongside an increasing number of customers choosing to play online rather than in the land-based sector.
As a result, Regulus said: “Unless customers are prepared to spend more on gaming overall, something has to give, and it appears to be giving in the land-based casino market as well as in higher spending bingo customers – the market and segment which happen to have the closest demographic overlap with higher spending online customers.”
Regulus concluded that: “20 years of low inflation and slow customer adoption of online has created the impression that online growth is independent of land-based resilience; this is a false impression which Rank is now demonstrating, in our view.
“Overall, the UK gaming customer is still showing remarkable resilience, but the pace of consumer change is now accelerating dangerously.”
Far from fine
Earlier this week, Rank subsidiary Daub Alderney lost an appeal against the Gambling Commission relating to a £5.9m fine issued in September 2021.
The fine was issued for social responsibility and AML failures on Rank’s part, but the operator subsequently appealed to the first-tier gambling tribunal on the grounds that the penalty was excessive, unfair and disproportionate.
That claim was rejected by the tribunal this week, as the fine was deemed a “fair and reasonable regulatory response.”