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(Sharecast News) - Gambling operator Rank Group reported underlying operating profit in line with its full-year guidance on Thursday, at £40.4m, swinging from a loss of £82.4m year-on-year.
The London-listed firm said performance in the second half of the year ended 30 June was impacted by difficult trading conditions in Grosvenor venues, particularly in London, which led to a reset of operating profit guidance for the full year.
Group operating profit swung to £82.1m from a loss of £92.9m, reflecting the net receipt of £77.1m from a VAT repayment, and an impairment charge of £25.8m net of impairment reversal.
The company returned to a net cash position pre IFRS-16 of £19.1m, supported by £100.7m of cash inflow from operations and £83.1m of VAT receipts.
Bank waiver restrictions had also been lifted, and Rank returned to standard debt covenants from 1 July.
Underlying venues net gaming revenue was up 209% year-on-year, but down 19% on the 2019 calendar year, reflecting the continued impact of, and gradual recovery from, the Covid-19 pandemic.
It said underlying digital net gaming revenue, meanwhile, grew 4%, supported by a 178% growth in active cross-channel customers.
There was a sixfold increase in underlying digital operating profit year-on-year to £18.7m, as further synergies were realised from the technology integration following the acquisition of Stride in October 2019.
Rank said the Mecca digital business had successfully migrated to the 'RIDE' platform in January, with the final brand, Grosvenor, set to migrate across by the end of the first quarter of the 2023 financial year.
Underlying venues operating profit included energy costs of £23m, which was up significantly on the 2019 cost of £13m.
Rank said energy costs for the 2023 financial year would total about £46m, based on current market prices.
At the same time, the firm said it was reshaping Mecca to return the brand to profitability, with seven venues closed in the first quarter of the new financial year.
The board said the company's "strong" cash position enabled the acceleration of its 'Transformation 2.0' programme, focussed on improving the customer offer and growing customer numbers.
That programme had delivered good returns from the £6.2m Grosvenor investment into new products and £5.3m casino refurbishments, the directors reported.
Progression of the its environment, social and governance (ESG) programme was also being made, with "significant developments" introduced in the year to enhance customer safety, including a new online markers-of-harm model, a new risk model across Grosvenor casinos, and the rolling out of a new machine management system in Mecca.
Rank said that while the delay to the publication of the government's gambling review white paper was "disappointing", it continued to build support for a programme of "modest reforms" for the land-based casino and bingo sectors.
Looking ahead, Rank said group underlying net gaming revenue was running 3% ahead of the prior year in the first seven weeks of 2023, while underlying digital net gaming revenue was up 12% in the seven weeks, with venues down 1%.
Grosvenor venues net gaming revenue was down 4% year-on-year, but with average weekly revenue in the seven weeks 11% ahead of the fourth quarter, with the gradual return of overseas customers to London casinos "more-than-offsetting" the softer trading conditions outside of London.
Mecca was seeing visits up 8% and net gaming revenue up 2%.
Rank said trading conditions were likely to remain challenging in the coming months, with high inflation hitting consumer discretionary expenditure and inflationary cost pressures, particularly the further rise in energy prices in recent weeks, continuing to impact operating margins.
However, the board said the successful migration to proprietary technology within the digital business and the investment into the venues estate meant the firm was able to compete "strongly" in the coming year.
Additionally, it said the "strong" balance sheet would enable continued investment in the transformation programme, positioning Rank for both growth and the expected regulatory reform to land-based gaming following the government's review of gambling regulation.
"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 chief executive officer 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.
"The lower than expected Grosvenor trading in the second half led us to reset full-year operating profit expectations as announced in the fourth quarter."
O'Reilly said that, while improvements were being seen in London in recent weeks, the trading environment across the UK was likely to remain difficult in the months ahead.
"However, we are taking actions to drive further efficiencies in the venues businesses, and we are seeing strong revenue growth in properties which have recently benefited from our accelerated capital investment programme.
"Performance in our digital business continues to improve against a difficult market backdrop.
"The transfer of the Rank brands to our proprietary technology platform is supporting revenue growth and a strong improvement to operating margins which we expect to accelerate with the migration of the Grosvenor brand in the coming weeks."
John O'Reilly added his "disappointment" at the delay to the government's white paper on gambling regulation.
"The land-based casino and bingo sectors are in need of long overdue modernisation of the regulations which govern their operation, something which the Government recognised in its objectives for the review.
"We expect Rank to be well positioned to benefit from the review when it concludes."
At 1021 BST, shares in The Rank Group were down 1.82% at 86.4p.
Reporting by Josh White at Sharecast.com.
