Rank Regulatory News (RNK)

News release

LEI: 213800TXKD6XZWOFTE12

17 August 2023

The Rank Group Plc ('Rank' or the 'Group')

Preliminary results for the 12 months ended 30 June 2023

Performance in line with upgraded guidance

Rank (LSE: RNK) is pleased to announce its preliminary results for the 12 months ended 30 June 2023.

Overview

Financial highlights

1. On a like-for-like ('LFL') basis which removes the impact of club openings, closures, foreign exchange movements and discontinued operations.

2. Excludes separately disclosed items.

3. Restated.

Operational highlights

Current trading and outlook

The new financial year has started strongly across all of the businesses with overall underlying Group LFL NGR ahead by 16% compared with the prior year.

Grosvenor venues NGR has grown 17% in the first six weeks with visits up 13%. Grosvenor venues trading performance outside London is strong with NGR up 25% and visits up 15%, but the performance in London is softer with NGR up only 5% on the same period last year.

Mecca venues had a very strong start to the year, benefitting from the wet weather in July and early August with NGR up 17%. Enracha venues NGR is ahead of the prior year by 12%.

Digital NGR is up 13% in the opening six weeks, continuing to benefit from new product and service enhancements and greater levels of personalisation for our customers.

Despite the generally challenging trading conditions, with inflation still running high and the increase in interest rates impacting consumer discretionary expenditure, we expect to see good levels of revenue increase year-on-year and to grow our profitability in 2023/24.

Dividend

Taking account of the continued challenging trading environment and the strong pipeline of investment opportunities to drive revenue and profit growth, the Board has not proposed a full year dividend but expects to recommence dividend payments as soon as circumstances permit.

John O'Reilly, Chief Executive of The Rank Group Plc said:

"The return of customers to our Grosvenor and Mecca venues continues to pick up and our second half numbers give cause for optimism after a very challenging couple of years. During that time, our UK venues have faced a surge in energy costs, high wage inflation, a tightening in the regulatory environment, the slow return of overseas visitors to London's casinos and the more general pressures on the consumer's discretionary expenditure. However, energy costs have stabilised, inflation appears to now be easing, customers continue to slowly return to both our Grosvenor and our Mecca venues and we now expect to deliver good levels of revenue and profit growth.

Our Digital business is performing strongly, and we have a strong pipeline of customer facing developments in both our UK and Spanish brands to drive revenue and profit growth. We are very focused on delivering a market leading cross-channel experience for our Grosvenor and Mecca customers with several key developments landing during this new financial year.

The UK Government's white paper on gambling reform sets out a number of important public policies which will enable the land-based bingo and casino sectors to modernise the customer proposition to better meet the needs of today's consumers. The delivery of the secondary legislation to enable these reforms cannot come soon enough and we are well advanced with plans to maximise these opportunities.

I am hugely grateful to my colleagues across the Group who continue to excite, entertain and protect their customers, provide support to their local communities and contribute fully to the progress we are making in the transformation of Rank."

Definition of terms:

Enquiries

Photographs available from www.rank.com

Analyst meeting and webcast details:

Thursday 17 August 2023

There will be an analyst meeting at 9.30am, admittance to which is by invitation only. There will also be a simultaneous webcast of the

meeting.

For the live webcast, please register at www.rank.com. A replay of the webcast and a copy of the slide presentation will be made available

on the website later. The webcast will be available for a period of six months.

Forward-looking statements

This announcement includes 'forward-looking statements'. These statements contain the words 'anticipate', 'believe', 'intend, 'estimate', 'expect' and words of similar meaning. All statements, other than statements of historical facts included in this announcement, including, without limitation, those regarding the Group's financial position, business strategy, plans and objectives of management for future operations (including development plans and objectives relating to the Group's products and services) are forward-looking statements that are based on current expectations. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause the actual results, performance, achievements or financial position of the Group to be materially different from future results, performance, achievements or financial position expressed or implied by such forward-looking statements. Such forward-looking statements are based on numerous assumptions regarding the Group's operating performance, present and future business strategies, and the environment in which the Group will operate in the future. These forward-looking statements speak only as at the date of this announcement. Subject to the Listing Rules of the Financial Conduct Authority, the Group expressly disclaims any obligation or undertaking, to disseminate any updates or revisions to any forward-looking statements, contained herein to reflect any change in the Group's expectations, with regard thereto or any change in events, conditions or circumstances on which any such statement is based. Past performance cannot be relied upon as a guide to future performance.

Business review

During H1 2022/23, the Group undertook a review of the Group's central costs and concluded it is appropriate that a proportion of these costs should be allocated to each of its operating business units. Consequently, we have presented operating profit pre and post the central cost reallocation and, to aid comparisons, 2021/22 operating profit for each business unit has been restated accordingly.

The year to 30 June 2023 saw the continued recovery of our venues businesses following the very heavy impact of pandemic lockdowns and the subsequent sharp rise in inflation, interest rates and energy costs. In the UK, both Grosvenor and Mecca venues saw accelerated revenue recovery in the second half of the year with profit conversion improving as energy costs began to fall. In Spain, Enracha continued its strong recovery and saw its annual revenues back above pre-pandemic levels. Our digital business maintained double digit revenue growth and is making an increasing contribution to the Group's overall profitability.

At a Group level, underlying like-for-like ('LFL') NGR of £679.7m was up 7% against the prior year. All businesses within the Group were in LFL revenue growth in the year with Grosvenor venues at +4%, Mecca venues at +7%, Enracha venues at +19% and Digital at +10%. With continued recovery in the venues businesses, revenue in the second half of the year grew 13% on the prior year compared with the 2% year on year growth posted in the first half.

The trading update issued in December 2022 reflected lower than expected performance in the first half of the year and rebased future performance expectations. This was the main driver of the £118.9m of impairment charges for the current year and relates to a number of our Grosvenor, Mecca and Enracha venues.

Despite the improving revenue position, underlying LFL operating profit of £20.3m was down 52% against the prior year (£42.5m), reflecting the significant increases in energy and employment costs and the absence of Government furlough payments and other pandemic related support which continued to support the Group in 2021/22. 

Energy costs are expected to be circa £20m for 2023/24, down from £28.6m in 2022/23.

1. Results are presented on a like-for-like ('LFL') basis which removes the impact of club openings, club closures, foreign exchange movements and discontinued operations.

2. A full analysis of these adjustments can be found in the Alternative Performance Measures ('APM') section.

Grosvenor venues

Key financial performance indicators:

1. Results are presented on a like for like ('LFL') basis which removes the impact of club openings, club closures, foreign exchange movements and discontinued operations.

2. Before the impact of separately disclosed items.

Grosvenor venues' underlying LFL NGR was up 4% compared to the prior year. Recovery from the combined impact of lockdowns during the pandemic and tightened affordability restrictions has been slower than expected. NGR declined 5% in the first half against the prior year but grew 15% against H2 2021/22.

Average weekly NGR grew from £5.8m in Q1 to £6.0m in Q2 and Q3 before falling back to £5.8m in our traditionally softer Q4. The respective year on year movements were (5)%, (5)%, +15% and +16%.

Grosvenor's London casino estate continues to perform below the levels seen prior to the pandemic. The rise of working from home following the pandemic has impacted visitor volumes in London but the most material effect remains the slow return of customers from the Middle East and from East and South-East Asia. With fewer international customers arriving in London, competition amongst London's casinos is more intense than ever. Revenue in the London estate was flat on the prior year.

The Grosvenor Russell Square casino was permanently closed in the year reducing the overall Grosvenor estate to 51 casinos, representing 43% of the UK market's 118 casinos.

Rest of the UK performance has been recovering more quickly. NGR was up 6% against the prior year on visits up 7%.

The largely fixed or semi-fixed cost base of the Grosvenor business delivers significant operating leverage as revenues grow. With revenues slow to recover to pre-pandemic levels, inflationary pressure on employment and other costs resulted in LFL underlying operating profit post-central cost recharges of £16.3m in the year (down from £36.5m in 2021/22). The key cost pressures on the business have been seen in salaries and wages +£12.2m, energy +£3.8m, and property maintenance +£2.3m.

The Grosvenor team has continued to focus on driving operating cost efficiencies in the year including the further rollout of a table operating system to ensure table gaming is operating as efficiently as possible, LED lighting and other energy saving initiatives, reductions in trading hours in selected venues and a rationalisation of the food and beverage offering to reduce wastage and improve operating margins.

The increase in salary and wage costs in the Grosvenor business reflects the labour market pressures since reopening following lockdown in May 2021. The absence of European croupiers coming to the UK as a result of Brexit has added to the broader job market pressures within the hospitality sector. The investment the business has made in colleague salaries and wages has significantly eased these employment pressures and supported the ongoing improvement in colleague engagement and eNPS scores across the Grosvenor estate. The Grosvenor management team has also been further strengthened with the addition of two further Regional Operations Managers in the year and the build out of a new high value customer team to better support the needs of higher staking customers particularly within the very competitive London market.

The Group has continued to invest in the Grosvenor business both to improve the quality of the customer proposition and to prepare the estate for the impact of the UK Government's review of gambling legislation for land-based casinos which, following the publication of the white paper in April 2023, is now expected to be implemented during 2024/25.

£7.1m has been invested in property refurbishments during 2022/23. Merchant City, Glasgow, is a high footfall venue in a very good location which has historically performed strongly but had needed updating. The venue has had a complete overhaul with the introduction of new brand standards which help to underline the entertainment and excitement of the Grosvenor customer proposition. Grosvenor Merchant City now has a bar, sports viewing area, restaurant and gaming machines on the ground floor with a modern and vibrant gaming and poker floor below. It has been an important development in broadening the appeal of casinos and the brand identity and brand guidelines have been gradually rolling out across the wider Grosvenor estate.

In the London estate, Grosvenor Gloucester Road has undergone a full refurbishment to better meet the needs of its Kensington customer base. The development includes a wholly refurbished gaming floor and a new restaurant and bar area. Grosvenor Bayswater (formerly the Golden Horseshoe) also now enjoys the benefit of a new restaurant and bar area which is proving very popular with its customers. All development projects continue to be designed for the implementation of up to 80 gaming machines once the policy decisions in the Government's review of gambling legislation are enacted.

£6.0m has been invested in new electronic gaming terminals, gaming machines, tables and wheels during the year. New gaming machines are being trialled for future implementation. Total capital investment in the Grosvenor estate in the year was £19.5m.

A new electronic roulette game has also been rolled out across the Grosvenor estate. Called Going for Gold, the game is the first to offer UK casino customers a side bet progressive with jackpots that run to hundreds of thousands of pounds. Another new initiative has been the roll out of a new local marketing tool and framework that enables casinos to identify, review and contact cohorts of contactable customers using SMS messaging; email capability will very soon be added to the functionality.

The Grosvenor business completed a Gambling Commission compliance assessment during 2022/23. There were several changes to policies and to practices to better protect our customers that were identified during the assessment process. Having implemented a new risk model in the prior year, this has now been rolled out on an app for colleagues to use to assess customer risk, determine the nature of the required customer interaction and to record and evaluate the outcomes. This provides a tighter framework for managing customer risk to ensure customers are playing within their means. It also enables earlier and, consequently, more positive interaction with our customers.

During the year, Grosvenor recognised an impairment charge of £53.3m relating to 23 venues due to lower than expected trading performance, and an impairment reversal of £6.6m relating to another seven venues.

Mecca venues

Key financial performance indicators:

1. Results are presented on a like for like ('LFL') basis which removes the impact of club openings, club closures, foreign exchange movements and discontinued operations.

2. Before the impact of separately disclosed items.

2022/23 has been something of a turnaround year for Mecca venues following the severe downturn the land-based bingo sector suffered as a result of the pandemic lockdowns. The bingo industry emerged from the pandemic with a smaller customer base and with the consequent lower revenues resulting in weaker prize boards. Stronger bingo venues in terms of prize fund liquidity have been able to sustain strong businesses and have attracted custom from weaker venues. Across the sector, post-pandemic, there has been too many bingo venues.

Mecca venues emerged from lockdown with an estate of generally strong bingo venues. Nevertheless, the downturn in customer numbers and revenues necessarily led to some closures. Bingo venues are social amenities which play a very important role within their local communities and therefore the decision to close a venue is not taken lightly. However, having given the lower liquidity Mecca venues every opportunity to recover and to return to profitability, 15 venues were permanently closed during 2022/23. This has reduced the Mecca estate to 56 venues. These 56 stronger venues have improved their appeal to customers with LFL NGR for the Mecca estate growing 7% against the prior year.

With a strengthened leadership team in place, Mecca venues ended the year with strong momentum. In the first half of the financial year NGR grew 4% on the prior year on customer visit volumes also growing by 4%. H2 2022/23 LFL NGR grew 11% on visitor volumes up 4%, with strong H2 performances from bingo and machine gaming. The business continues to see the return of customers following the pandemic despite reopening two years prior. However, the business continues to attract high volumes of new customers with circa 4% of customers every week being new to Mecca. Over 50% of new customers to Mecca are aged under 35.

Mecca's customer net promoter score ('NPS') further improved, rising from +61 last year to +78 in 2022/23. The increasing momentum in the business also reflects in our colleague eNPS scores which further increased from +4 in 2021/22 to +25 in 2022/23.

Main stage bingo NGR grew 24% on the prior year, driven by the success of strong prize boards and the addition of a new bingo variant. Interval bingo NGR grew 9% and food and beverage sales grew 6%. Gaming machine NGR grew by just 2% in the year, but with stronger momentum in the second half of the year which saw NGR grow by 7%. Much work is ongoing across the Mecca estate to improve the quality of the machine offering and we are hopeful that the announced change in the Government's white paper to the makeup of machines in bingo venues, which currently restricts Category B3 machines to just 20% of the gaming machine offering, will enable Mecca to better meet the needs of today's consumers.

With LFL NGR growing £9.3m in the year, Mecca's LFL underlying operating loss post-central cost was £5.8m, down from £4.9m in 2021/22. The key cost increases in the year were energy +£1.3m and property maintenance +£1.5m, offset by reductions in duty and employment costs.

The performance of Mecca Luton, which reopened in March 2022, continued to improve during the year, delivering many learnings in terms of its attractiveness to a broader customer base. Consequently, investments have been made in the year at nine Mecca venues, primarily focusing on updating their external appearance and improving the quality of the gaming machine offering. Playsafe, a system which supports the provision of real time information for our colleagues on individual customer machine play has been successfully rolled out across the estate. Total capital investment in the Mecca estate in 2022/23 was £12.5m.

During the year Mecca recognised an impairment charge of £61.5m relating to 70 venues, including some which were closed in the year, due to the lower than previously expected performance.

Enracha venues

Key financial performance indicators:

1. Results are presented on a like for like ('LFL') basis which removes the impact of club closures, foreign exchange movements and discontinued operations.

2. Before the impact of separately disclosed items.

The Enracha estate of nine bingo, machine gaming and sports betting venues in Spain performed strongly with underlying LFL NGR growing 19% over the prior year. LFL NGR of £36.4m was the result of continued strong growth in gaming machine NGR (AWPs, electronic roulette and B3/B4 bingo machines) which were up 25%, with main stage bingo NGR up 10% on the prior year. This improving NGR position for bingo reflects the strength of bingo liquidity and prize boards across the Enracha venues estate.

Customer visits grew 16% in the year.

Enracha delivered a LFL underlying operating profit post allocation of central costs of £9.1m, up 11% on the £8.2m operating profit in 2021/22. The key areas of cost increase were seen in employment costs which were up £3.0m and energy costs which were up £0.4m on the prior year. The reallocation of central costs only marginally impacted LFL underlying profit at £9.1m.

Capital investment in the year of £1.2m was focused on completing the rollout of TiTo (the ticket in ticket out customer payment and withdrawal mechanism for gaming machines), a trial of a loyalty programme in selected venues, the rollout of a new food and beverage electronic point of sale ('EPOS') system, machine jackpot display screens and the continued upgrade of the gaming machine estate.

During the year Enracha venues recognised an impairment charge of £4.1m relating to two venues whose performance was lower than anticipated.

Digital

Key financial performance indicators:

1. Results are presented on a like-for-like ('LFL') basis which removes the impact of foreign exchange.

2. Before the impact of separately disclosed items.

3. Includes contribution from Passion Gaming.

The digital business has performed strongly in the year with LFL NGR growth of 10% to £202.9m and underlying LFL operating profit pre allocation of central costs growing 7% to £18.8m. After the reallocation of £5.0m of costs previously assigned as central costs, but now appropriately charged to the digital business, the full year underlying operating profit was £13.8m.

LFL NGR, excluding Enracha/Yo, was up 10% on the prior year at £178.8m. Now fully operating on the RIDE proprietary platform, the Mecca and Grosvenor brands continued to improve their performance with Mecca growing NGR 9% and Grosvenor growing 14% year on year. Our other UK facing brands saw NGR grow 8% in the year.

With the successful conclusion of the project to ready the RIDE platform for the migration of the Mecca and Grosvenor online sites, the digital team is now focused on further improving the products, services and user journeys for our customers. Much greater personalisation has been added to the Mecca and Grosvenor sites during the year so that the customer increasingly receives an offering which more suitably meets their preferences. New live gaming tables have been added both from Grosvenor venues and from a new live dealer studio opened during the year. Safer gambling player journeys continue to be improved to reduce friction for customers and a new markers of harm model has been successfully introduced to further help identify at risk play in real time.

The development effort in the software engineering hub in Cape Town is centred on the next phase of delivering a seamless cross-channel experience to customers including a unified customer membership system, a single content management system operating across all the digital brands and further modernising the RIDE platform to speed up the development time and to increase both capacity and reliability. Artificial Intelligence ('AI') is being added to customer journeys and in particular to customer support to improve our responsiveness to customers. The development of a single cross-channel central engagement platform has also now been successfully completed and is being rolled out across key data driven processes such as real time predictive models, cross channel single customer view and real time business performance reporting. The business continues to build out its operations hub in Mauritius which provides a high-quality capability across a number of key back office, marketing and customer management functions.

In Spain, the Yo and Enracha brands grew LFL NGR by 12% in the year. YoSports was successfully launched prior to the FIFA World Cup and the site has received a good response from customers. The ability to accelerate growth in the Spanish market is constrained by the marketing restrictions introduced by the Government in 2021. However, the launch of YoSports has supported customer acquisition and revenue growth in the year and further initiatives, including platform and site enhancements and product developments are in the pipeline to further support the YoBingo, YoCasino and Enracha brands.

The application to the Portuguese regulator for a licence to launch YoBingo is ongoing, the timescale largely the result of no other bingo brand having yet been licensed in Portugal.

Passion Gaming, the online Indian rummy business in which Rank holds a 51% share, grew LFL NGR by 33% in the year following the easing of regulatory restrictions in certain states.

Group liquidity

The Group ended the year with total cash and available facilities of £101.4m.

In May 2023, the Group made its scheduled term loan repayment of £34.5m in line with the agreed loan amortisation profile reducing its term loan to £44.4m. 

In August 2023, the Group secured a financing package which totalled £100m of revolving credit facilities. £25m is committed until November 2024 and the remaining £75m is committed until February 2025. The Group has subsequently repaid the remaining term loan of £44.4m.

The Group will look to replace the £100m of RCF with a longer-term financing package in 2023/24 when it anticipates securing better financing terms, driven by additional consecutive months of improved trading.

The Group expects to meet all future financial covenants under its current lending facilities.

Sustainability update

We are continuing to mature our approach to ESG and have strengthened governance of sustainability initiatives and performance through the formation of new working groups, comprising of individuals across the business and supported by external consultants.

In recognition of the importance of ESG on our long-term business success, we have also introduced eight key performance indicators (KPIs) across our four focus areas - Customers, Colleagues, Environment and Communities.

For detail of Rank's performance please refer to the Strategic update section.

*Four of these KPIs are linked to executive compensation and further embed the importance of ESG into our core objectives and culture. 

Customers

Safer gambling remains a primary commitment in both our business and sustainability strategy. Our goal is to deliver an entertaining experience and, therefore, we want all our customers to play within their means. Safer gambling is a constant consideration in every customer engagement.

We continue to invest in technology to ensure that we remain at the leading edge when it comes to player protection. Through the development of our bespoke Central Engagement Platform ('CEP'), we are bringing all customer data into one singular platform, improving customer visibility and enabling us to better monitor their play across all our brands, digital and land based. Through adding automation to the alert system for detecting potential problem gambling it has already enhanced the ability of our Grosvenor venues to observe incidences of harmful play in real time and to make interventions where required.

The experience and dedication of our colleagues remains an invaluable tool in safeguarding customers' mental and financial wellbeing. The relationships our venue teams have established with their customers delivers an irreplaceable human understanding of play at the individual level. To complement the abilities of our staff in identifying 'at-risk' play, we have invested significantly in employee training. Over 1,200 of our colleagues across Grosvenor, Mecca and UK Digital businesses received in-depth training to detect and deal with harmful gambling and have reported improved understanding of potential risks and more confidence in taking action when they identify concerning playing behaviour.

Colleagues

To enhance our approach to colleague engagement, we introduced the position of Chief People Officer this year and we have been pleased to see the immediate impact this new role and focus has had. There is now a stronger focus on culture across the organisation, and we are making great strides in elevating the employee experience. Our People and Culture function have been restructured to improve the flow of information from all our locations up to Group level, ensure we are well placed to support our people and culture plans on a local level, and provide oversight of all aspects of the employee development lifecycle. This has helped to assess what works well and determine where we can improve. Whilst we have invested greatly in employee professional development, we know there is more to be done to make sure that everyone is being brought along on the Group's journey. Our conception of a compelling new Employee Value Proposition ('EVP') is central in addressing this. The EVP will improve outcomes for employees in every country of operation through the restructuring of our rewards and benefits policy and creates a greater cohesion through improved integration of our company values. The results are already being realised in the evident quality of people we are bringing into the business, including at executive level.

Environment

Our consideration for our environmental impact has accelerated in recent years. This analysis reflects not only our commitment to being a responsible corporate citizen, but also in recognition of the material financial savings made possible by improving energy efficiency.

The Group is now fully committed to being net zero by 2035 for all Scope 1, 2 and selected Scope 3 emissions and fully net zero across all scopes by 2050. 

Our newly formed Net Zero Working Group oversees decarbonisation initiatives across Rank. This year, the first step has been to conduct an extensive energy audit of our venues in both the UK and Spain. By establishing a utilisation baseline, we now have a clear and comprehensive understanding of where energy savings and carbon reductions can be made. The application of monitoring technology in the UK captures energy use right down to the machine level, and the data collected will additionally support preventative maintenance programmes, further improving both the carbon and cost efficiency of our operations.

Informed by our energy assessment, we have established Group-wide interim Net Zero targets and are developing a strategy to support the achievement of these objectives. In Spain, we have already installed LED lighting, and we have introduced a number of simple solutions in our Mecca venues this year to reduce energy consumption.

Fundamental to the success of our net zero strategy, will be the buy-in and strategy implementation from our colleagues. We are therefore developing an internal programme to raise awareness and instil behavioural change throughout our support offices and venues.

Communities

We greatly value the connections we have with the communities where we operate. Whenever I visit a venue, I am always struck by how much our employees truly care about their customers. Bingo is an important weekly social occasion for many; as a result, our Mecca colleagues strike up strong relationships with their customers and will even reach out to check-in on elderly patrons when they do not attend in line with their usual routine.

Embedded in these communities as we are, we can provide support that meets local need. Taking a largely decentralised approach to our philanthropic endeavours, we allow our clubs autonomy on the initiatives they champion. This year's activities have included everything from hosting community meetings and events in our venues, to donating to Easter and Christmas hampers as part of campaigns to support underprivileged groups.

At Group level we are proud to have been partnered with Carers Trust for almost a decade. This year alone, we provided support to 480 carers, with colleagues raising £0.3m through hosting charity poker nights, completing marathons and bike rides, and much more.

Further detail regarding our sustainability strategy and the progress made in the year will be outlined in our 2023 sustainability report which will be published in September 2023.

Regulatory update

The UK Government's white paper, published on 27 April, set out public policy for reforms to land-based and online gambling regulation and legislation. The reforms to land-based casinos and bingo are critical to ensuring that we can meet the needs of today's consumers.

The Government plans to enable casinos to offer up to 80 gaming machines on a 5:1 machine to live gaming table ratio, subject to the size of the venue and the available non-gaming space. Casinos will also be able to offer sports betting facilities and enable electronic payments, rather than just cash, on gaming machines. These modest but essential reforms, which will be delivered through secondary legislation, will enable the UK's casinos to better meet the expectations of customers.

The white paper also supports enabling credit to be offered to High Net Worth international customers visiting the UK. The extension of table games such as blackjack on electronic terminals to enable customers to play at lower staking levels has been left as an open issue requiring further review. Both of these reforms would require primary legislation, something which is unlikely to happen in the foreseeable future.

In bingo, the Government has supported reform to the current restriction that requires no more than 20% of the gaming machines to be category B3 (£2 maximum stake and £500 maximum prize), with the balance required to be category C and D machines which are increasingly unpopular with customers. Category B3 machines account for over 70% of machine revenues in Mecca. Rather than removing the rule, the Government has proposed establishing a new 50% rule, requiring half of the available machines to be category C or D. This reform, whilst not going quite as far as we would wish, will enable us to go some way in modernising the machine offering for Mecca's customers. The bingo reforms also include allowing customers to make electronic, rather than simply cash, payments.

The Government has outlined that it expects these critical land-based reforms to be implemented through secondary legislation (positive statutory instruments) by the summer of 2024.

In the digital sector, the Government is consulting on a maximum staking limit for online slot games which would subsequently be delivered through secondary legislation. The other reforms to online gaming, including changes to game design, an opt in requirement for cross-sell and financial risk assessments (to provide a frictionless check on a customer's means), will be delivered by changes to regulations (Licence Conditions and Codes of Practice ('LCCP')) following consultations now being conducted by the Gambling Commission. The Commission anticipates that the full programme of reforms to LCCP will take three years to deliver. We would not expect a customer centric approach to these regulatory reforms to have a material impact to our UK facing digital business which is already positioned to ensure we provide very high levels of protection to our customers.

Board changes

Having completed over six years on the Board, Steven Esom, Non-Executive Director and Chair of the Remuneration Committee, stepped down from the Board on 31 December 2022. 

Lucinda Charles-Jones succeeded Steven Esom as Chair of the Remuneration Committee and was appointed as the designated Non-Executive Director for workforce engagement from 1 January 2023.

 On 16 August, Keith Laslop was appointed to the Board as a Non-Executive Director and a member of the Audit Committee, with effect from 1 September 2023. Keith was previously Chief Financial Officer of Gamesys Group Plc between 2013 and October 2021.

Management changes

From 1 June 2023, Jon Martin took on a newly created role of Chief Operating Officer for the Group. Jon was previously managing director for our UK digital business, a role he has held since 2020. 

Jon will continue to have accountability for the strategy and performance of the UK digital business, as well as taking overall responsibility for the development and delivery of Rank's cross-channel customer offer for the Mecca and Grosvenor brands.

Andrew Peat will join the Group from William Hill later in 2023 as Managing Director of the Group's UK digital business. 

In August 2023, Mark Harper joined as Grosvenor's new Managing Director. Mark joins us from Pears Partnership Capital, part of the William Pears Group, where he was the Operating Partner, managing the leisure and hospitality investment portfolio, a role he has been in since 2021. Mark has broad experience in the leisure industry and the 24/7 economy, with ten years at Allied Domecq Leisure across many of their divisions and more recently in leadership roles at several leading holiday park Groups.

Our strategy and KPIs

Our strategy is focused on generating long term sustainable shareholder value. We have made considerable progress which ensures significant opportunity in the next phase of the plan.

Strategic pillar 1

Provide a seamless and tailored experience for customers across venues and online.

In the markets in which we operate, Rank is one of the few gaming companies in a position to provide customers with a genuine one-brand gaming experience across both venues and online. Our key assets are our 116 venues, our membership-based models, our customer relationships and the high levels of engagement that our team members enjoy with our customers.

KPIs

Percentage of venues customers that play with us online

Percentage of digital NGR from cross-channel customers

Focus for 2023/24:

Strategic pillar 2

Drive digital growth powered by our proprietary technology and live play credentials.

We have built strong positions in venues-based gaming which we are seeking to replicate across our digital channels. In 2022/23, our digital operations generated 30% of Group revenue. Across the UK as a whole, digital channels represented around 65% of the gambling market (excluding the National Lottery) pre-pandemic, presenting a significant growth opportunity.

KPIs

Digital NGR

Digital customer numbers

Focus for 2023/24:

Strategic pillar 3

Continuously evolve our venues estate with engaging propositions that appeal to both existing and new customers.

Our casino and bingo venues provide entertainment for millions of customers each year and generate the majority of the Group's revenue and profits. By continuously evolving our venues (in terms of product, environment and service) and by creating new concepts, we are constantly enhancing the experiences that we offer our customers, whether they be existing or new.

KPIs

Venues customer numbers

Venues strategic investment

Venues Net Promoter Score

Focus for 2023/24:

Strategic pillar 4

Be passionate about the development and well-being of our colleagues and the contribution we make to our communities.

We continue to build a high-performing culture through the engagement and development of colleagues who want to put exciting and entertaining customers at the heart of what they do. We strive for a culture of ownership and transparency that empowers our teams to achieve goals they did not think possible and to be the very best that they can be. We are also acutely aware of the role our venues, support offices and colleagues play in the communities in which we operate and together as a collective organisation we strive to add value wherever possible.

KPIs

Focus for 2023/24:

Strategic pillar 5

Build sustainable relationships with our customers by providing them with safe environments in which to play.

Millions of customers regularly enjoy the fun and excitement of gambling, but we recognise that a small percentage of customers can be at risk of problem gambling and a smaller number of people can suffer harm through excessive gambling. We recognise the importance of continuous innovation to refine our approach to making gambling as safe as possible thus ensuring we create and maintain sustainable relationships with all our customers.

KPIs

Scores were not recorded prior to 2022/23. Enracha venues and our Spanish digital business will start to seek customer feedback in 2023/24.

Focus for 2023/24:

CFO's review

Within this section all prior year comparatives are to the year ended 30 June 2022.

Reported net gaming revenue ('NGR')

For the 12 months ended 30 June 2023 NGR increased by 6% to £681.9m following an improved NGR performance across a majority of the Group's business units.

Operating profit

The Group delivered an operating loss of £109.8m for the year, compared to an operating profit of £80.8m, principally due to higher impairment charges of £118.9m, higher operating costs and a VAT refund in the prior year.

Energy costs are a significant cost for the Group and to provide the Group with some certainty it has adopted an agreed hedging policy. This allows the Group to fix a portion of its future energy costs up to two years in advance, near term energy costs can be fixed up to 100%. Regarding 2023/24, 70% of the Group energy costs have been fixed and at current market prices we expect 2023/24 energy costs to be approximately £20m.

Separately disclosed items ('SDIs')

SDIs are items that are infrequent in nature and/or do not relate to Rank's underlying business performance.

Total SDIs for the year ended 30 June 2023 were £101.5m.

The key SDIs in the year were as follows:

Further details regarding the SDIs can be found in note 4 of the financial statements.

Prior period restatement

During the year, the Group identified an accumulated total of £2.2m of prior year payment processing costs within the Digital business which erroneously had not been recognised in the prior year financial statements. Of the total value, £1.3m relates to 2021/22, with £0.6m relating to H1 2021/22 and £0.7m to H2 2021/22. The remaining £0.9m relates to pre 2021/22.

Net financing charge

The £12.3m underlying net financing charge for the year ended 30 June 2023 was slightly lower than the prior year's charge of £13.4m principally due to lower bank fee amortisation costs in the current year. The underlying net financing charge includes £6.5m of lease interest calculated under IFRS 16.

Cash flow and net debt

As at 30 June 2023, net debt was £172.9m. Debt comprised £44.4m in term loans, £18.0m of drawn revolving credit facilities and £169.0m in finance leases, offset by cash at bank of £58.5m. In the period, the Group repaid £34.5m of the term loan in line with the loan's agreed amortisation schedule.

In August 2023, the Group made an early repayment of the remaining balance of the term loan, funded by the new £100m RCF.

The Group finished the year with net debt for covenant purposes of £19.1m.

1. Restated

Taxation

The Group's underlying effective corporation tax rate in 2022/23 was 8.8% (2021/22: 23.5%) based on a tax charge of £0.6m (excluding impact of rate changes on deferred tax) on underlying profit before taxation. This is different to the Group's anticipated effective tax rate of 16-18% for the year. This is mainly as a result of lower than forecasted profits in UK operations.

The underlying effective corporation tax rate for 2023/24 is expected to be 20-22%, being below the UK statutory tax rate. The tax rate is driven by some overseas profits being taxed at lower rates than the UK.

On a statutory basis, the Group had an effective tax rate of 22.1% (2021/22: 22.7%) based on a tax credit of £27.1m and total loss of £122.7m. This is higher than the effected tax rate on underlying profit because of the significant level of separately disclosed items which attract a tax credit.

Further details of the tax charge are provided in note 6 of the financial statements.

Earnings per share ('EPS')

Basic EPS declined to a loss of 20.4p from a profit of 13.9p in the prior year. Underlying EPS declined to 1.2p from 4.0p in the prior year. For further details refer to note 9 of the financial statements.

Cash tax rate

In the year ended 30 June 2023, the Group had an effective cash tax rate of (2.6)% on total profit before taxation (2021/22: (13.3)%). The cash tax rate is lower than the effective tax rate due to losses generated by the UK operations during the period resulting in no cash tax payable in the UK.

The Group is expected to have a cash tax rate of approximately (14)-(16)% in the year ended 30 June 2024. This is lower than the effective tax rate due to the utilisation of brought forward tax losses and refunds of UK corporation tax expected from prior year overpayments and loss carry back claims.

Alternative performance measures

When assessing, discussing and measuring the Group's financial performance, management refer to measures used for internal performance management. These measures are not defined or specified under UK adopted International Financial Reporting Standards (IFRS) and as such are considered to be Alternative Performance Measures ('APMs').

By their nature, APMs are not uniformly applied by all preparers including other operators in the gambling industry. Accordingly, APMs used by the Group may not be comparable to other companies within the Group's industry.

Purpose

APMs are used by management to aid comparison and assess historical performance against internal performance benchmarks and across reporting periods. These measures provide an ongoing and consistent basis to assess performance by excluding items that are materially non-recurring, uncontrollable or exceptional. These measures can be classified in terms of their key financial characteristics.

Profit measures allow management and users of the financial statements to assess and benchmark underlying business performance during the year. They are primarily used by operational management to measure operating profit contribution and are also used by the Board to assess performance against business plan.

The following table explains the key APMs applied by the Group and referred to in these statements:

Rationale for adjustments - Profit and debt measure

SDIs are items that bear no relation to the Group's underlying ongoing operating performance. The adjustment helps users of the accounts better assess the underlying performance of the Group, helps align to the measures used to run the business and still maintains clarity to the statutory reported numbers. 

Further details of the SDIs can be found in the Financial Review and note 4. 

In the current period (2022/23), the Group closed one Grosvenor venue and 15 Mecca venues. For the purpose of calculating like-for-like ('LFL') measures its contribution has been excluded from the prior period numbers and current period numbers, to ensure comparatives are made to measures on the same basis.

During the year the exchange rates may fluctuate, therefore by using an exchange rate fixed throughout the year the impact on overseas business performance can be calculated and eliminated.

The tables below reconcile the underlying performance measures to the reported measures of the continuing operations of the Group.

Calculation of comparative underlying LFL NGR

Calculation of comparative underlying LFL operating profit

Comparison of 2022/23 LFL performance to CY2019

Whilst year-on-year comparisons are now free from the material impacts of the pandemic experienced in calendar years 2020 and 2021, the Group continues to review performance against the 12 months to 31 December 2019 (CY 2019), the last comparable period which was unaffected by COVID-19 and the more recent inflationary pressures.

1. Stride was acquired in October 2019 and has been included on a pro forma basis.

Reallocation of central costs

During the year, the Group undertook a review of the Group's central costs and has concluded that a proportion of them, which are directly attributable to the relevant business units, should be allocated to those business units, better reflecting the underlying profitability of each segment. This resulted in changes in the underlying profit (loss) of each segment in the prior year which has been re-presented in the table below.

Analysis of total costs by type and segment and how the central costs have been re-allocated:

Principal risks and uncertainties

The Board has conducted a robust assessment of the Company's principal and emerging risks. The risks outlined in this section are the principal risks that we have identified as material to the Group. They represent a 'point-in-time' assessment, as the environment in which the Group operates is constantly changing and new risks may always arise.

Risks are considered in terms of likelihood and impact and are based on residual risk rating of: high, medium and low, i.e. after taking into account controls already in place and operating effectively. Mapping risks in this way helps not only to prioritise the risks and required actions but also to direct the required resource to maintain the effectiveness of controls already in place and mitigate further where required.

The risks outlined in this section are not set out in any order of priority, and do not include all risks associated with the Group's activities.

Additional risks not presently known to management, or currently deemed less material, may also have an adverse effect on the business. Risks such as these are not raised as principal risks but are nevertheless periodically monitored for their impact on the Group.

Emerging risks

Our risk management processes include consideration of emerging (including opportunity) risks; horizon scanning is performed with a view to enabling management to take timely steps to intervene as appropriate.

Our methodology used to identify emerging risks includes reviews with both internal and external subject matter experts, reviews of consultation papers and publications from within and outside the industry and the use of key risk indicators. Throughout the year some new risks have emerged and developed which have been monitored by management and action taken when they started to crystallise.

The current economic pressures, high rates of inflation and pressures on disposable incomes are a cause for concern for many consumers. The executive directors continue to be vigilant of the changing economic backdrop and the impact on the Group.

Additionally, changes in the regulation of the gaming market are monitored closely and the Group continues to evolve climate-related risks and opportunities. However, climate risks are currently not regarded as a principal risk and the risk itself is currently considered low.