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.