Grosvenor Casino and Mecca Bingo operator Rank Group has reported its financial results for the 12 months ended 30 June, 2023.
Group underlying like-for-like net gaming revenue (NGR) totalled £679.7m for the year, an increase of 7.3% year-on-year.
Of the total, £476.8m or 70.1% came from the operator’s land-based venues, which showed year-on-year growth of 6.1% across the portfolio.
Meanwhile, digital revenue came in at £202.9m, representing the remaining 29.9% of group revenue and demonstrating year-on-year growth of 10.4%.
Brand breakdown
Revenue across all of Rank’s digital brands was up across both the UK and Spain.
The Grosvenor Casino chain of venues continued to be the highest earning business segment for Rank, as it generated 45.1% of group revenue, or £306.3m, a year-on-year increase of 4.2%.
The Digital segment generated the next largest amount of revenue at £202.9m, up some 10%, though Rank did not provide a specific breakdown of the growth across each of its digital brands.
Mecca Bingo venues generated a further 19.7% of overall revenue at £134.1m, up 7.5% year-on-year.
Meanwhile the Enracha chain of venues in Spain generated just 5.4% of group revenue at £36.4m, but was the fastest growing business segment for Rank as it saw revenue increase 18.6% year-on-year.
Turn to loss
Despite the increases in revenue across all business areas, Rank’s underlying like-for-like operating profit fell by 52.2% to £20.3m.
That caused a year-on-year drop in the firm’s earnings per share, from 4p to 1.2p.
The drop in underlying operating profit came as the result of a variety of increased costs, including on employee salaries, energy, proprerty costs, Covid-19 support, IT costs, marketing and other inflation-related increases in expenses.
The results fell short of Rank’s expectations, said CFO Richard Harris, despite revenue increases.
Following impairment charges totalling £118.9m during the year, among other expenses, Rank declared a group operating loss of £109.8m, and a loss before taxation of £122.7m.
As a result, the group fell to a loss after tax (accounting for a tax benefit of £27.1m) of £95.3m, compared to a £64.9m profit after tax in the prior year.
The Rank Group has reported a 13% year-on-year increase in NGR due to improved performance across all business segments.
Group NGR climbed to £174.4m in the firm’s financial Q3 (three months ending 31 March), with digital NGR up 16% to £52.5m and land-based venue NGR up 12% to £121.9m.
The group’s chain of Grosvenor land-based casinos saw the biggest revenue increase, generating NGR of £77.9m, up 15% on the same period last year following improved performance across London and the rest of the UK.
Grosvenor’s average weekly NGR in the quarter was £6.1m, up 15% on Q3 2021/22 and up 2% on the previous quarter, which benefitted from strong Christmas trading.
Meanwhile, revenue from Rank’s Mecca bingo venues grew by 9% to £34.8m, driven by a 4% increase in customer visits and a 5% increase in spend per visit.
Average weekly NGR for Mecca venues reached £2.7m, up 9% on the comparable period last year and up 10% sequentially.
In Spain, Rank’s Enracha venues generated £9.2m in revenue during the quarter, an increase of 8% on the previous year.
In the online sector, Rank posted digital revenue of £52.5m.
Rank noted a 15% rise in digital revenue from the UK, with revenue from the Grosvenor online brand up 23% and Mecca online up 15%. Rank’s other digital brands in the UK were up by 7%, while Spanish digital revenue also jumped 19%.
Better than expected
Rank Group said the start of financial Q4 (beginning 1 April) is traditionally a quieter period for its Grosvenor venues.
However, due to the improved performance seen in Q3, the board now expects the group’s underlying like-for-like operating profit for the full year to 30 June 2023 to be at the upper end or slightly ahead of the previously guided range of between £10m and £20m.
Rank Group reported a £101.2m loss for the first half of its financial year 2022/23 as a result of rising costs of energy, wages and other expenses.
Chief executive John O’Reilly attributed the improved performance to investments made to better the customer experience in venues and the build-out of enhancements to the customer experience online on Rank’s proprietary technology.
“We are pleased that the momentum we saw at the start of the second half of our financial year has continued with positive NGR growth across all our businesses,” he said, and added that the company has “a strong pipeline of developments to continue to grow market share into the future”.
Analyst Ivor Jones of investment bank Peel Hunt described the group’s performance as “internally-generated success”.
“Inbound tourism is picking up, and this is probably helping the Grosvenor venues business in London,” he added.
“However, we believe that the investments made by Rank in customer experience in its venues are a material driver of outperformance as the customer base grows.”
Year-to-date results
In the nine months leading up to 31 March, the Rank Group saw a 6% increase in revenue, which reached £511.8m.
Within this period, Grosvenor venue NGR only slightly increased by 1%, totalling £231.2m, while Mecca venues’ NGR grew by 6% to £100.3m.
Enracha venues in Spain experienced a significant increase of 19%, generating £26.9m in NGR. Meanwhile, digital NGR rose by 11%, totalling £153.3m.
London-listed operator Rank Group reported a net loss of £101.2m in the six months ending 31 December 2022, despite a 2% increase in group revenue to £338.9m.
Topline numbers
Despite the modest year-on-year revenue increase, the operator reported a £101.2m loss for the first half of its financial year 2022/23 as a result of rising costs for energy, wages and other expenses.
The company’s land-based venues business saw a 1% decrease in revenue from the prior-year period and a 20% decrease from H1 2019/20, the last comparable period which was unaffected by COVID-19.
Revenue from the segment totalled £236.6m.
Digital NGR, meanwhile, showed a 9% increase from the previous year and a 1% increase compared to H1 2019/20, at £100.8m.
Rank Group reported strong holiday trading, specifically in its Grosvenor venues, but noted that it remains cautious about the outlook for H2 given current economic conditions.
The company previously issued a trading update in December and lowered its profit forecast.
News nugget
Rank Group’s operating margins have been severely affected by rising costs for energy, wage inflation, and other expenses.
Average wage increases across the company were 8%, with some employees receiving 9% increases.
Rank said that in 2022/23, costs are expected to increase by about £45-50m, with energy costs projected to be £31m for the full financial year.
Growth drivers
Revenue growth was mostly driven by a 25% year-on-year increase in revenue from the firm’s Enracha venues business in Spain to £17.7m, in addition to its 9% increase in digital revenue to £100.8m.
Meanwhile, revenue from the Grosvenor venues declined 5%, while revenue from its Mecca bingo venues grew by 4% to £65.5m.
Underlying like-for-like operating profit for H1 came in at £4.2m compared with £24.9m in the same period of the previous year.
In a conference call with shareholders, Rank Group CEO John O’Reilly highlighted that both Rank’s Mecca and Grosvenor venues were affected by the pandemic and have not yet fully recovered, but the company is focused on returning them back to pre-pandemic levels.
Meanwhile, O’Reilly highlighted that Rank’s digital business continues to perform well.
All of the group’s brands are now operating on Rank’s proprietary RIDE platform, with Grosvenor being the last brand to complete the migration in H1 2022/23.
“We are now in control of our future from a technology standpoint and have the vision and capability to deliver a market leading cross-channel customer experience in both Grosvenor and Mecca alongside strong and growing support brands in the UK and internationally,” he added.
Rank is now looking forward to the publication of the UK Government’s gambling review white paper.
“Casino and bingo venues are in need of long overdue modernisation of outdated regulation which heavily restricts the customer proposition.
“This appears to be widely recognised within the debate surrounding the Government’s review and we are hopeful of a positive policy outcome followed by the much-needed rapid implementation of new regulation,” O’Reilly said.
Best quote
Rank Group CEO John O’Reilly: “Since lockdown we have faced a huge increase in energy costs, high wage inflation, the slow return of overseas visitors to London and the increasing pressure on consumer’s discretionary income. We have also experienced a continued tightening of the regulatory environment, particularly in regards to affordability restrictions on customers.”
Best question
Ivor Jones of Peel Hunt asked about Rank’s capital expenditure, which totalled £24.2m during the period, up from £13.4m in H1 2021/22.
He wanted to know where the capital was invested.
CFO Richard Harris said around 50% was invested in Grosvenor venues and a significant portion in IT platforms, which supported the 9% growth in digital business.
Harris also mentioned that Rank invested in energy efficiency measures, which it expects to pay off in the next six months.
The company also shifted all of its electricity consumption to renewable energy sources.
Trading update and outlook
Rank reported a positive performance during the holiday season and the first few weeks of January 2023, but acknowledges that financial pressures may impact customer spending in the coming months.
Despite this, the company expects to see continued growth in its digital operations and is maintaining its forecast for full-year operating profit to fall within the range of £10m to £20m.
Rank’s H1 results had little impact on stock prices as the decrease in profits had been already communicated in December.
Analysts from Peel Hunt viewed Rank’s performance as broadly positive. Although the firm noted that there was not enough in today’s statement to support an upgrade, “trading is encouraging,” it said.
However, Peel Hunt added that at a time “when energy prices are high, consumer confidence is low and multi-year investments are beginning to pay off”, it is the wrong time to become more cautious.
Therefore, the firm increased its target price from 90p to 100p and changed its recommendation from Buy to Add.
Shares in the Rank Group slipped by more than 9% today (13 October) despite the operator announcing net gaming revenue growth of around 2% in the first quarter of its 2022/23 financial year (three months ended 30 September 2022).
The modest growth, which brought the firm’s overall NGR to £165.7m, was recorded following a 13% increase in digital revenue to £48.9m, while the company’s largest segment – its UK land-based Grosvenor Casino venues – saw revenue dip 5% to £75.3m.
Mecca Bingo venues in the UK fared slightly better, registering a 2% revenue increase to £33.3m while Rank’s Enracha land-based venues in Spain saw revenue grow 24% to £8.2m.
The dip in Grosvenor’s land-based revenue came in spite of an increase in visitor numbers, as the average spend per visit decreased across the group’s nationwide chain of casinos.
In London, revenue from Grosvenor venues actually grew by 21% as the casinos saw a 20% increase in the number of customer visits, but this growth was more than offset by a 17% revenue decline in venues outside London where customer spend levels were weaker.
Average weekly NGR for the Grosvenor brand was £5.7m, down 5% on the prior-year comparative period but up 12% against the previous quarter.
The firm’s digital brands helped mitigate some of the revenue reductions seen in the land-based sector, as the online Grosvenor brand performed well with 25% revenue growth, following its migration onto Rank’s proprietary RIDE platform in September.
Rank Group CEO John O’Reilly: “It is pleasing to see increasing visits in this new financial year together with strong growth in the digital business, where we are starting to see the benefits of investments in our proprietary technology platform and our cross-channel offering, with encouraging growth in both the UK and Spain.”
Mecca digital remained relatively flat with revenue up just 1%, while Rank’s Spanish online operations grew by 12%.
Rank said that consumer discretionary expenditure “is expected to remain under significant pressure this year,” as inflation remains high.
It added however that the recently announced Energy Bill Relief Scheme is welcomed by the group and, following its implementation, Rank expects energy costs in the current financial year to total around £34m, up from £23m in FY22.
Other inflationary pressures continue to present a challenge to the business, it said, particularly in the land-based sector as wage inflation, food price increases and supply chain pressures all continue to push up costs.
“It is pleasing to see increasing visits in this new financial year together with strong growth in the digital business, where we are starting to see the benefits of investments in our proprietary technology platform and our cross-channel offering, with encouraging growth in both the UK and Spain,” said Rank Group CEO John O’Reilly.
“The group has a number of key initiatives underway to improve long term revenues. These include some key refurbishment projects and new electronic roulette and jackpot games in Grosvenor; improving the gaming machine offering in Mecca; increased personalisation and a stronger live casino offering in the UK digital business and the recent launch of Yo Sports in Spain.
“The Group has the benefit of a strong balance sheet, enabling us to continue investing in the business through this period,” O’Reilly concluded.
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).”