Rank Group Plc · LSE:RNK
Rank — H1 2006 Earnings Presentation
47 slides from Rank's earnings presentation, Sep 1, 2006
Slide 1: Interim results 2006
Interim results 2006 Friday 1st September 2006
Slide 2: Agenda
Agenda • Interim results – Peter Gill • Business assessment & strategic priorities – Ian Burke
Slide 3: Peter Gill, finance director
Nd Rank Group Peter Gill finance director
Slide 4: Interim financial headlines
Interim financial headlines continuing operations • Revenue up 7.2% to £426.1m • Operating profit down 5.8% to £58m • Adjusted profit before tax down 2.9% to £40.7m • Adjusted EPS 5.1p (2005: 4.6p) • Operating cash flow £24.4m (2005: £44.3m) • Net debt £555.2m (2005 year end £739.4m) • Dividend per
Slide 5: Adjusted profit
Adjusted profit* £m 2006 2005 Revenue 426.1 397.3 Operating profit 58.0 61.6 Joint ventures (0.9) (0.7) Interest (16.4) (19.0) Profit before tax 40.7 41.9 Effective tax rate 20.0% 29.6% Adjusted earnings per share 5.1p 4.6p * Profits and earnings before discontinued operations, exceptional items, fo
Slide 6: Operating profit
Operating profit £m 2006 2005 Gaming 46.5 52.0 Hard Rock 18.9 16.4 US Holidays 1.1 1.1 Central costs (8.5) (7.9) 58.0 61.6
Slide 7: Gaming
Gaming Revenue Operating profit £m 2006 2005 2006 2005 Bingo 149.1 149.3 36.0 43.2 Casinos 109.6 100.3 20.5 18.0 Interactive 18.6 12.4 3.1 0.3 Overhead (13.1) (9.5) 277.3 262.0 46.5 52.0
Slide 8: Bingo
Bingo Revenue Operating profit £m 2006 2005 2006 2005 Mecca Bingo 133.9 133.9 31.8 38.5 Top Rank Espana 15.2 15.4 4.2 4.7 149.1 149.3 36.0 43.2 Mecca Bingo 2006 2005 Admissions (‘000) 9,956 10,122 Spend per head (£) 13.45 13.23
Slide 9: Casinos
Casinos Revenue Operating profit £m 2006 2005 2006 2005 London - upper 13.5 10.8 2.8 2.1 London - mainstream 35.1 33.1 6.2 5.0 Provincial 54.8 50.4 11.0 10.4 Belgium 6.2 6.0 0.5 0.5 109.6 100.3 20.5 18.0 Grosvenor UK 2006 2005 Admissions (‘000) 2,282 2,106 Spend per head (£) 45.35 44.79
Slide 10: Interactive
Interactive Blue Square Gross win/revenue £m 2006 2005 Gaming 10.2 5.7 Sportsbook 8.4 6.7 18.6 12.4 Operating profit 3.1 0.3
Slide 11: Hard Rock
Hard Rock Revenue Operating profit £m 2006 2005 2006 2005 Company cafes 120.4 110.7 13.8 12.7 Franchise cafes 4.3 2.8 3.6 2.2 Hotels & casinos 9.0 7.8 7.7 6.3 Equity distributions 2.9 2.5 Overheads (9.1) (7.3) 133.7 121.3 18.9 16.4
Slide 12: Statutory profit & loss
Statutory profit & loss £m 2006 2005 Adjusted profit before tax 40.7 41.9 Foreign exchange on 7.5 (7.7) inter-company balances Amortisation of equity component (1.5) (1.5) of convertible bond Profit before tax and exceptional items 46.7 32.7 Exceptional items* (26.8) - Profit before tax 19.9 32.7 Ta
Slide 13: Discontinued operations
Discontinued operations (Deluxe Film & Deluxe Media) Film Media £m 2006 2005 2006 2005 Operating profit (loss) 1.3 29.0 (10.0) (12.4) Exceptional operating items - - - (13.2) Operating profit (loss) 1.3 29.0 (10.0) (25.6) after exceptional items Net profit (loss) 1.0 20.9 (7.6) (35.6)
Slide 14: Group cash flow
Group cash flow £m 2006 2005 Continuing Operations Cash inflow from operating activities 51.0 57.8 Capital expenditure (28.3) (14.1) Fixed assets disposals 1.7 0.6 Operating cash inflow from continuing operations 24.4 44.3 Acquisitions, disposals and capital distributions 409.5 14.1 433.9 58.4 Inter
Slide 15: Movement in net debt
Movement in net debt £m 739 -410 95 555 50 -22 103 Net debt Acquisitions & Share Additional FX on Cashflow Net at Disposals buyback pension US borrowings debt at 31/12/05 contributions 30/06/06
Slide 16: Ian Burke, chief executive
Nd Rank Group lan Burke chief executive
Slide 17: Rank Group strategic priorities
Rank Group strategic priorities • Re-energise Rank Gaming • Establish appropriate group cost structure • Maintain growth of Hard Rock and examine strategic options • Exit Deluxe Media and other non-core interests • Complete balance sheet restructuring
Slide 18: Rank Gaming context
Rank Gaming context • Right time for shake-up – good market positions - no2 in UK bingo; no2 in UK casino - respected operator in Spanish bingo - on-line gaming & sportsbook operations – experienced and responsible operator – under-performance in recent years – emerging challenges and opportunities
Slide 19: Rank Gaming
Rank Gaming • Tighter and more efficient management structure put in place – merger of corporate functions with Gaming – simplified & more focused management structure – Blue Square integrated within Rank Gaming • Situational assessments and action plans developed for each business – focus on gaming
Slide 20: Mecca Bingo context
Mecca Bingo context • Established brand • Sound historic financial characteristics – 24% operating margin* • Stable membership base – >1 million active members • Opportunities from further deregulation * before divisional overhead
Slide 21: Mecca Bingo context: recent trends
Mecca Bingo context • Recent trends – admissions erosion & spend-per-head increases – rising business costs (inc. duty & taxation) – regulatory & legislative changes - smoking ban -‘loss’ of Section 21 machines/prizeline for cash • Loss of competitiveness & market share – declining prizeboards & hig
Slide 22: Mecca Bingo market share 1999-2005
Mecca Bingo market share 1999-2005 Mecca Bingo Market Share - Based on NBGA Ticket Sales 36% 34% 32% 30% 28% 26% 24% 22% 20% 1999 2000 2001 2002 2003 2004 2005
Slide 23: Mecca Bingo priorities
Mecca Bingo priorities • Address Mecca Bingo’s competitive positioning • Create efficient cost structure for Mecca Bingo clubs • Mitigate smoking ban impact
Slide 24: Mecca Bingo competitive positioning
Mecca Bingo competitive positioning • Re-establish reputation for quality & value – drive prizeboards & admissions through reduced participation fee percentage – raise service levels and standards • Review and improve club portfolio – six clubs closed in 2006 (to August) – two new clubs opened in H1
Slide 25: Mecca Bingo market share 2006
Mecca Bingo market share 2006 Mecca Bingo 2006 Market Share - Based on NBGA Ticket Sales 30.0% 29.5% 29.0% 28.5% 28.0% 27.5% 27.0% 1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 Week
Slide 26: Mecca Bingo cost structure
Mecca Bingo cost structure • Review and address club costs – club crewing model - re-alignment of club roles - c200 redundancies in Mecca - improved labour scheduling – purchasing and other operational efficiencies • Cost savings to soften impact of smoking ban
Slide 27: Mecca Bingo smoking ban
Mecca Bingo smoking ban • Smoking ban in Scotland from 26 March 2006 • Immediate effect on club revenues and profits* – 6% decline in admissions – 9% decline in spend per head – 14% decline in revenue – unusually hot weather exacerbates effect * 13 week period from 27 March to 26 June 2006, set agai
Slide 28: Mecca Bingo smoking ban
Mecca Bingo smoking ban • Adapt product to meet challenge – greater flexibility in bingo sessions – tactical use of linked interval games – use of technology to drive spend per head • Smoking ban across UK during 2007 – opportunity to attract non-smokers to bingo
Slide 29: Top Rank Espana
Top Rank Espana • 11 high quality clubs – 28% operating margin* • Limited expansion opportunities • Smoking ban from 2006 – partial ban with phased introduction * before divisional overhead
Slide 30: Grosvenor Casinos context
Grosvenor Casinos context • Established & experienced casinos operator • Good historic financial characteristics – 19% operating margin* • Growing membership base – >0.6 million active members • Significant opportunities from deregulation * before divisional overhead
Slide 31: Grosvenor Casinos context
Grosvenor Casinos context • Recent trends encouraging – catalyst of ‘early freedoms’ from October 2005 – 9.3% revenue growth in H1 – 8.3% admissions growth in H1 • Further deregulation to come – relaxation of advertising restrictions – extension of permitted gaming activities
Slide 32: Grosvenor Casinos context
Grosvenor Casinos context • Increasingly competitive marketplace – market supply expected to exceed 200 casinos by 2010 under 1968 Act licences – 17 new casinos under 2005 Act • Threat of smoking ban – no direct experience – Scottish operators report little impact – negative experiences in other glo
Slide 33: Grosvenor Casinos priorities
Grosvenor Casinos priorities • Position Grosvenor to benefit from demand growth for mainstream casinos • Grow estate through addition of new licences
Slide 34: Grosvenor Casinos positioning
Grosvenor Casinos positioning Grosvenor Casinos - growth in electronic gaming • Continue to broaden Gaming and improve casino positions Slots 900 Electronic roulette offering 800 – best in class 700 service 600 500 – electronic gaming 400 development 300 200 – expand and 100 improve card room 0 oper
Slide 35: Grosvenor Casinos positioning
Grosvenor Casinos positioning • Improve quality of existing estate – selective ‘relocation’ of licences to superior premises – selective extensions of existing casinos • Exit non-core assets – closure of two loss-making casinos – sale of Clermont Club for £31m
Slide 36: Grosvenor Casinos grow estate
Grosvenor Casinos grow estate • 1968 Act - High number of licences secured – 8 provincial casino ‘cold licences’ granted – majority of new casinos to be opened by 2009 • 2005 Act - Grosvenor in strong position – Rank’s expertise in casino, bingo and sportsbook – careful identification of opportuniti
Slide 37: Grosvenor Casinos Belgium
Grosvenor Casinos Belgium • Deregulation benefits for Belgian casinos – 2 casinos - Middlekerke & Blankenberge – opportunity to extend gaming products - electronic roulette and video poker from 2007 - growth in slot machine capacity - bingo and card room poker permitted from 2007
Slide 38: Blue Square context
Blue Square context • Acquired by Rank in 2003 – then - principally telebet and online sportsbook – now - multi-channel gaming and sportsbook • Track record of innovation – development of differentiated gaming & sportsbook products • Underperformance since acquisition
Slide 39: Blue Square priorities
Blue Square priorities • Integrate with retail gaming businesses – Group centre for technological development – games development & cross-marketing • Improve operational performance – customer acquisition through multi-product & multi-brand offers – continued product innovation – differentiated mark
Slide 40: Group cost structure savings
Group cost structure savings • £6m Corporate and Gaming overhead savings identified – closure of Rank Corporate HQ, London – simplification of management structures – elimination of role duplication
Slide 41: Hard Rock context
Hard Rock context • Strong brand • Good operating performance – 19% operating margin* • Broad development platform – Cafes – Hotels – Casinos * Excludes equity distributions from URHP and central overhead
Slide 42: Hard Rock priorities
Hard Rock priorities • Maintain steady growth in company-operated cafes – improve customer offering – improve quality of portfolio • Pursue development opportunities with appropriate capital investment – Cafes - franchise model – Hotels - management contracts & licensing agreements – Casino-hotels -
Slide 43: Hard Rock strategic review
Hard Rock strategic review • Strong operating performance • Opportunities for significant further growth • Capital required to support ambitions • Limited synergies with Rank Gaming • Appropriate time to review and test market
Slide 44: Exit Deluxe Media & non-core interests
Exit Deluxe Media & non-core interests • Deluxe Media Services – exit of UK now complete – in negotiations to dispose of remaining businesses - DVD replication and distribution, USA - Distribution, Europe • US Holidays – review of exit options commenced
Slide 45: Balance sheet: complete restructuring
Balance sheet complete restructuring • 2.0 times target dividend cover • 3.5 - 4.0 times target net debt/EBITDA • Share buy-back to recommence • Use of proceeds from sale & leaseback to be determined following completion of Hard Rock strategic review
Slide 46: Summary
Summary • Good progress made in past six months • Priorities now: – implement performance improvement actions in Gaming – deliver identified cost savings – exit remaining Deluxe Media businesses – conclude Hard Rock review • Outlook
Slide 47: Interim results 2006
Nd Rank Group Interim results 2006