Rank to cut costs as Grosvenor struggles lead to major profit decline

In a trading update for the five months to 30 November, the Rank Group said like-for-like net gaming revenue (LFL NGR) was up 1% compared to the same period in the prior year, with like-for-like net gaming revenue growth in Mecca venues, Enracha venues and Digital offset by a decline in Grosvenor venues.

Rank said it expects underlying operating profit for the year ending 30 June 2023 to be in the range of £10m to £20m. The lower end of that estimate would be a quarter of the £40.4m achieved in 2021-22, which in itself was down on an initial estimate of up to £55m.

“Weaker than expected”

Rank said the main variable within the estimate was the performance of its Grosvenor venues, due to the high operating leverage within Grosvenor and its relative importance to the group as a whole.

While there was some improvement in Grosvenor’s trading over the last few weeks, trading in Q2 was “weaker than expected”, with weekly average NGR of £5.8m being only marginally ahead of the levels seen in Q1.

Rank said it had expected Grosvenor venues to continue to improve throughout Q2 and then into the second half of the year, but this improvement has not yet materialised, driven by lower customer spend per visit. It added that the return to growth will take longer than previously expected due to the current challenging macro-economic backdrop.

Mecca Bingo

In the first five months of the year, Mecca customer visit numbers were up 4% on the prior year, with Q2 weekly average NGR in line with Q1.

There has been a recent weakening in weekly average NGR due to lower visit numbers, impacted by the Fifa World Cup and colder weather, as well as the ongoing cost of living pressure on consumers.

Rank said year-to-date performance in its Mecca venues creates a level of downside risk to the full year out-turn for FY23.

Rank’s Enracha venues in Spain continued to perform strongly with NGR up 27% as investments into electronic product continue to deliver strong returns. The group said it expects the Enracha venues to continue to perform strongly for the remainder of FY23, with Spanish customers being less impacted by cost of living pressures than those in the UK.

Rank Digital

Rank said its Rank Digital business continues to deliver good growth, with NGR up 11%. The UK digital arm was up 10%, following the successful migration of Grosvenor onto its proprietary technology platform, while International was up 13% driven by continued growth in YoBingo and the launch of YoSports in October 2022.

In issuing its profit estimate, Rank said total known cost increases for the year remain broadly in line with its expectations at approximately £50m driven by wage inflation, energy inflation, other price increases and Covid-19 related government support received in FY22.

Rank Group cost-cutting

John O'Reilly, Rank’s chief executive, said the group was planning on cutting costs.

“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,” he said.

“While 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.”

UK land-based weaknesses

Regulus Partners said Rank’s trading update provides more evidence of the UK land-based casino market’s vulnerability to consumer retrenchment in the current climate.

“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 said. “This is a bigger problem for Rank than the market overall because Rank’s share of UK land-based gaming is c.14% whereas its share of UK online gaming is only c.4% – channel shift hurts.”

Rank Group fine appeal

Earlier this week, Rank Group subsidiary Daub Alderney failed in its appeal of a fine handed down by the GB Gambling Commission in 2021.

Issued in September 2021, the Daub Alderney fine was in relation to a host of social responsibility and anti-money laundering shortcomings uncovered by the Commission during an investigation covering the period between January 2019 and March 2020.

Daub Alderney appealed to the First-Tier Tribunal on the grounds that the financial penalty was excessive, unfair and disproportionate.

However, after examining evidence from both sides, judge Jacqueline Findlay dismissed the appeal and ruled the financial penalty was a “fair and reasonable regulatory response” to the failings uncovered by the Commission.