Rank Group Plc · LSE:RNK
Rank — H1 2005 Earnings Presentation
68 slides from Rank's earnings presentation, Sep 2, 2005
Slide 1: Interim Results 2005
Interim Results 2005 2 September 2005
Slide 2: Alun Cathcart, Chairman
Alun Cathcart Chairman
Slide 3: Mike Smith, Chief Executive
Mike Smith Chief Executive
Slide 4: Themes for the day
Themes for the day Financial headline: higher revenue, flat profits • Gaming – Market positions: more licences: Deregulation to fuel growth • Hard Rock – Brand strength: stabilised cafes: franchise / licence growth • Deluxe Film – Recovery from Q4 04: fast growth Creative Services • Deluxe Media – R
Slide 5: Peter Gill, Finance Director
Peter Gill Finance Director
Slide 6: Basis of reporting
Basis of reporting • IFRS adoption • Discontinued business
Slide 7: IFRS headlines
IFRS headlines 2004 Adjusted profit* £m UK GAAP 151.0 IFRS 156.0 2004 Net assets £m UK GAAP 414.7 IFRS 400.0 2004 Adjusted EPS UK GAAP 18.0p IFRS 18.8p * Adjusted Group profit - pre-exceptional profit before tax excluding DMS less foreign exchange movements on inter company taken to profit & loss ac
Slide 8: Financial headlines
Financial headlines • Revenue up 15% to £870.5m (2004 - £757.7m) • Operating profit* up 1% to £90.6m (2004 - £90.0m) • Profit before tax* down 2% to £71.0m (2004 - £72.4m) • EPS* 8.2p (2004 - 9.0p) • Cash outflow of £(78.7)m (2004 - £12.4m) • Net debt £736.9m (31 December 2004 - £637.7m) • Interim d
Slide 9: Adjusted profit
Adjusted profit* £m 2005 2004 Revenue 870.5 757.7 Operating profit 90.6 90.0 Associates and (0.1) 0.2 Joint Ventures Interest (19.5) (17.8) Profit before tax 71.0 72.4 Effective tax rate 26.6% 26.3% Earnings per share 8.2p 9.0p * Profits and earnings before discontinued operations, exceptional items
Slide 10: Operating profit
Operating profit £m 2005 2004* Gaming 52.0 54.8 Hard Rock 16.4 11.7 Deluxe Film 29.0 27.6 US Holidays 1.1 1.4 Central costs (7.9) (5.5) 90.6 90.0 * Operating profit before exceptional items
Slide 11: Gaming
Gaming £m 2005 2004* % growth Revenue Mecca 149.3 146.9 +1.6% Grosvenor 100.3 94.4 +6.3% Blue Square 283.9 198.2 +43.2% 533.5 439.5 +21.4% Operating profit Mecca 39.1 39.9 -2.0% Grosvenor 13.9 13.7 +1.5% Blue Square (1.0) 1.3 -177% 52.0 54.9 -5.3% * Excludes RLMS disposal in Feb 2004
Slide 12: Mecca Bingo
Mecca Bingo £m 2005 2004 % growth Turnover UK 133.9 133.9 0% Spain 15.4 13.0 +18.5% 149.3 146.9 +1.6% Operating profit UK 34.4 36.5 -5.8% Spain 4.7 3.4 +38.2% 39.1 39.9 -2.0% Mecca UK Admissions (000s) 10,122 10,710 -5% Spend per head (£) 13.23 12.50 +6%
Slide 13: Grosvenor Casinos
Grosvenor Casinos £m 2005 2004 % growth Turnover London - upper 10.8 11.6 -6.9% London - other 27.6 25.9 +6.6% Provincial 49.4 45.8 +7.9% Hard Rock 6.5 5.1 +27.5% 94.3 88.4 +6.7% Operating profit London - upper 2.1 1.7 +23.5% London - other 4.4 4.2 +4.8% Provinces 10.8 11.0 -1.8% Hard Rock 0.1 (0.5)
Slide 14: Blue Square
Blue Square £m 2005 2004 % growth Stakes Online 250.9 168.2 +49.2% Telephone 33.0 30.0 +10.0% 283.9 198.2 +43.2% Gross Win Online 10.8 10.8 - Telephone 2.1 2.4 -12.5% 12.9 13.2 -2.3%
Slide 15: Hard Rock
Hard Rock £m 2005 2004 % growth Revenue 121.3 112.9 +7.4% Operating profit Company operated Cafes 12.7 11.2 +13.4% Third Party operated Cafes 2.1 2.0 +5.0% Hotels/Casinos 5.8 2.4 +142% Territory sales / other 0.6 (0.3) - Equity distributions 2.5 2.0 +25.0% Overheads (7.3) (5.6) -30.4% 16.4 11.7 +40.
Slide 16: Deluxe Film
Deluxe Film £m 2005 2004 % change Revenue Film Processing and Distribution 165.2 166.0 -0.5% Creative Services 36.5 19.4 +88.7% 201.7 185.4 +8.8% Operating profit Film Processing and Distribution 21.9 23.8 -8.0% Creative Services 7.1 3.8 +86.8% 29.0 27.6 +5.1%
Slide 17: Statutory Profit & Loss
Statutory Profit & Loss £m 2005 2004 Adjusted profit before tax 71.0 72.4 Foreign exchange on inter-company balances (9.3) (1.4) Amortisation of equity component of convertible bond (1.5) - Profit before tax and exceptional items 60.2 71.0 Exceptional items - (4.1) Profit before tax 60.2 66.9 Taxati
Slide 18: Discontinued operations Deluxe Media Services
Discontinued operations Deluxe Media Services £m 2005 2004 Operating loss (12.4) (9.1) Exceptional items (13.2) (27.9) Total operating loss (25.6) (37.0) Interest (0.8) (0.2) Tax (9.2) 3.0 Loss after tax (35.6) (34.2)
Slide 19: Group cash flow H1
Group cash flow H1 £m 2005 2004 Operating activities 85.8 91.6 Deluxe contract advances (50.9) 17.9 Capital expenditure (30.6) (55.3) Fixed asset disposals 1.0 0.6 Operating cash flow 5.3 54.8 Interest, tax and dividends (81.1) (57.4) Free cash flow (75.8) (2.6) Acquisitions (21.0) (14.9) Disposals
Slide 20: Movement in net debt
Movement in net debt £m 26 737 34 51 638 31 (12) 607 UK GAAP Net IFRS Deluxe Conract FX on US Cashflow Closing Net debt at 31-Dec Adjustments at Advances borrowings Debt 30-Jun 04 01-Jan 05 05 Operational items IFRS adjustments
Slide 21: Mike Smith, Chief Executive
Mike Smith Chief Executive
Slide 22: Deluxe within Rank
Deluxe within Rank • “Least best fit” - stated 2000 – Group stability – Shareholder returns • “Separation” - announced Sep. 2004 – Decision still firm • Deluxe Media – Sale advancing • Deluxe Film (including Creative Services) – Sale also in active process – Complex process: Shareholder value
Slide 23: Deluxe – Current performance
Deluxe – Current performance Deluxe Media • Manufacturing and distribution assets remain competitive (scale) • Despite uncertainties, 2005 volumes ‘firm’ • Restructuring continues apace • Exited from VHS Deluxe Film • Processing recovery from poor last quarter ‘04 – Barcelona lab re-equip / expansio
Slide 24: Deluxe Film: Growth of Creative Services
Deluxe Film Growth of Creative Services Creative Services contribution to Deluxe Film 30% 25% 24% 20% 18% 15% 15% 14% 14% 10% 11% 10% 8% 5% 0% FY 2003 H1 2004 FY 2004 H1 2005 % of Deluxe Film Revenue % of Deluxe Film EBIT Creative Services £33m £19m £51m £37m Revenue
Slide 25: Deluxe Film: Market strength of Creative Services
Deluxe Film Market strength of Creative Services • Industry leader in digital intermediate (DI) and digital laboratory services through EFILM – DI has grown 128% annually over the past three years – EFILM market share 46% • Market leader in DVD pre-mastering – 37% of worldwide CE&A market – Compleme
Slide 26: Deluxe Film - Digital Cinema
Deluxe Film - Digital Cinema • Current impact – Less than 1% penetration – Conventional screens growing faster • Quality – 4K solution required – Reliability • Economics – No current viable economic model – Cost of projectors / maintenance – Who pays / who benefits Limited impact on separation proce
Slide 27: Deluxe and Rank
Deluxe and Rank • Deluxe Film – Current performance – Strong contract position – Muted threat from Digital Cinema – Successful move to higher tech digital businesses – Cash generative No hindrance to separation / sale Complexity / value • Rank Not a cul de sac Does not inhibit Group development
Slide 28: Rank leisure oriented businesses
Rank leisure oriented businesses • Hard Rock - Build on brand strengths – Growth through Franchise / Licensing – Increasing importance of Casino / Hotel revenues • Gaming - Build on market strengths – Growth through UK deregulation and product introduction – Leveraging capacity and recent investment
Slide 29: Hard Rock Cafes
Hard Rock Cafes • Stabilised performance • Food & beverage growth • Upgraded merchandise • Concentration on higher traffic sites • Closure of underperforming assets • Brand re-invigoration • Franchise acceleration • 2005 openings: Caracas, Gran Canaria, Belo Horizonte and Mumbai
Slide 30: Hard Rock New York Cafe
Hard Rock New York Cafe • Times Square New York • Approx. 35,000 square feet • 708 seats • 31.4 million tourists visit Times Square every year
Slide 31: Hard Rock Casino development
Hard Rock Casino development • Las Vegas • Florida (Seminole) – Tampa – Fort Lauderdale • Hitting targets • Biloxi - Opening postponed in wake of Hurricane Katrina Hard Rock hotel/casino at Tampa, Florida • Development teams expanded Hard Rock Hotel / Casino in Tampa More active investment being con
Slide 32: Hard Rock Hotel Development
Hard Rock Hotel Development - excluding casinos • Pre 2000 2 resort hotels • 2000 Loews / Universal Orlando Joint Venture • Partners Sol Melia / HPL / Intrawest • Now announced: – North America • Chicago / New York / San Diego / Lifestyle condo hotels – Europe • Madrid Development teams expanded
Slide 33: Hard Rock - Growth and expansion of Franchise / Licence Fees
Hard Rock - Growth and expansion of Franchise / Licence Fees % of Hard Rock operating profit 80% 70% 65% 63% 63% 60% 55% 50% 45% 40% 37% 37% 35% 30% 20% 10% 0% FY 2003 H1 2004 FY 2004 H1 2005 % Franchise licence distributions % Company cafes Hard Rock £234m £113m £232m £121m Revenue
Slide 34: Gaming - Blue Square
Gaming - Blue Square Diversified on-line games company • H1 turnover up 42% • Games 52% of turnover – Blue Square casino – Poker room – On-line games • Quiz Wizz, Fortune Wheel, Ace Race, Snapjax, Aces High, Roulette, Lucky Squares, Monte Carlo Millions, Threes Up, Paradice • Games development • Can
Slide 35: Bingo
Bingo • Mature market • Low growth • High cash flow • Steady market share • Membership / attendance • Spend per head • Cash line • Machines (section 21) • Electronic bingo
Slide 36: Bingo - Deregulation
Bingo - Deregulation • 24 hour rule - Oct. 2005 • Membership / flexibility of stakes and prizes - Sep. 2007 • Limited new competition • Duty rates • Smoking ban
Slide 37: Casinos
Casinos • Immature market (limited promotion) • Growth characteristics apparent • Well invested • Increasing market share • Increased membership / attendance • Handle per head (down slightly) • More casino licences • Additional product – Auto-roulette etc.
Slide 38: Casinos - Deregulation
Casinos - Deregulation • 24 hour rule - Oct. 2005 • 10 additional slot machines - Oct. 2005 • 40 auto products - Oct. 2005 • Increasing stakes / prizes - Oct. 2005 • Membership / advertising and other - Sep. 2007 • Additional competition • Duty rates • Smoking ban
Slide 39: Casino growth
Casino growth Number of machines No. of machines Now Oct. ‘05 Casinos 36 36 Jackpot machines 300 622 Hybrid 23 56 Total 323 678 Auto-products 640 790 Total machines 963 1,468 Up 52%
Slide 40: Impact of Deregulation
Impact of Deregulation • A whole package - bigger market • Additional licences • Additional product – Not just jackpot machines • Accessibility • Promotion The biggest advance for 40 years
Slide 41: Summary and outlook
Rank Group Summary and outlook Flat profit outlook in 2005 • Deluxe Media – Where we expect to be … sale advancing • Deluxe Film – Growth in creative services … firm intent to separate • Hard Rock – Stabilised … growth from licence / franchise • Gaming – Mixed outcome … but deregulation is near …
Slide 42: Interim Results 2005
,S Rank Group Interim Results 2005
Slide 43: Supplementary Slides
Appendix 1 Supplementary Slides
Slide 44: Capital expenditure
Capital expenditure* £m H1 H1 FY 2005 estimate 2005 2004 Gaming 7.4 29.6 30 - 40 Hard Rock 6.3 5.8 12 - 16 Deluxe 12.6 5.3 40 - 50 Other 0.4 0.9 2-3 26.7 41.6 84 - 109 Appendix 1
Slide 45: Deluxe Film contract advances 2005 H1 summary
Deluxe Film contract advances 2005 H1 summary £m 2005 2004 New advances (82.6) (6.2) Amortisation 29.6 28.1 Net cashflow (53.0) 21.9 Net receivable 236.3 184.4 Creditors 32.9 100.1 Appendix 1
Slide 46: The Rank Group Plc IFRS Briefing
Appendix 2 The Rank Group Plc IFRS Briefing Issued July 2005 July 2005
Slide 47: Cautionary statement
Cautionary statement International Financial Reporting Standards (‘IFRS’) are being applied in the European Union for the first time. There are a number of new and revised Standards included in the body of Standards that comprise IFRS. There is not yet a significant body of established practice upon
Slide 48: IFRS headlines
IFRS headlines 2004 Adjusted profit* £m UK GAAP 151.0 IFRS 156.0 2004 net assets £m UK GAAP 414.7 IFRS 400.0 2004 Adjusted EPS UK GAAP 18.0p IFRS 18.8p * Adjusted Group profit - pre-exceptional profit before tax excluding DMS less foreign exchange movements on inter company taken to profit & loss ac
Slide 49: Outlook
Outlook • IFRS adoption will not materially impact – 2005 adjusted profit – How the business operates, cashflow generation • Additional 2005 considerations: • IAS 39 & 39 adopted 1 January 2005 – Amortisation of equity component of convertible bond (2005 onwards) – IAS 32 & 39 adoption will increase
Slide 50: Operating profit divisional reconciliation
Operating profit* divisional reconciliation UK IFRS DMS GAAP Adjs Adjs IFRS Year ended 31 December 2004 £m £m £m £m Gaming 112.0 5.0 - 117.0 Hard Rock 27.8 0.1 - 27.9 Deluxe Film 57.4 2.4 - 59.8 Deluxe Media Services 8.9 - (8.9) - Resorts USA 4.2 (0.1) - 4.1 Central costs (13.2) 0.3 - (12.9) Associa
Slide 51: 2004 Income Statement
2004 Income Statement UK IFRS DMS IFRS GAAP Adjs Adjs £m £m £m £m Revenue 1,953.3 - (385.1) 1,568.2 Operating profit - pre-exceptional 197.6 7.2 (8.9) 195.9 Exceptional operating losses (58.1) (10.5) 27.1 (41.5) Operating profit 139.5 (3.3) 18.2 154.4 Non-operating items (185.5) 4.1 181.4 - Net fina
Slide 52: 2004 Adjusted Profit Reconciliation
2004 Adjusted Profit Reconciliation £m £m UK loss before tax (83.3) - DMS operating profit (pre-exceptional) (8.9) - DMS interest (0.4) - Exceptional items 243.6 234.3 Adjusted UK GAAP profit 151.0 IFRS profit before tax 125.9 - Exceptional items 41.5 - Gains on inter-company balances (11.4) 30.1 Ad
Slide 53: Pre-exceptional operating profit reconciliation
Pre-exceptional operating profit reconciliation £m £m 2004 Operating profit* - UK GAAP 197.6 DMS UK GAAP profit removed (8.9) 188.7 IFRS adjustments (excluding DMS): Goodwill amortisation 5.8 Goodwill no longer amortised Acquired intangible amortisation (0.1) 2004 acquisitions Operating lease costs
Slide 54: Post exceptional operating profit reconciliation
Post exceptional operating profit reconciliation 2004 Operating profit - UK GAAP £m £m Pre-exceptional 197.6 Exceptional items (58.1) DMS (£27.1m), Hard Rock (£31m) UK GAAP operating profit 139.5 DMS reclassification: Reclassified as held for sale Pre-exceptional operating profit (8.9) Exceptional i
Slide 55: Operating profit divisional reconciliation
Operating profit* divisional reconciliation UK IFRS DMS IFRS GAAP Adjs Adjs Year ended 31 December 2004 £m £m £m £m Gaming 112.0 5.0 - 117.0 Hard Rock 27.8 0.1 - 27.9 Deluxe Film 57.4 2.4 - 59.8 Deluxe Media Services 8.9 - (8.9) - Resorts USA 4.2 (0.1) - 4.1 Central costs (13.2) 0.3 - (12.9) Associa
Slide 56: Operating profit reconciliation - Gaming
Operating profit* reconciliation - Gaming £m £m Operating profit*- UK GAAP 112.0 IFRS adjustments: Goodwill amortisation 2.8 Goodwill no longer amortised Operating leases 0.5 Reclassified as finance leases Employee benefit costs (0.6) Share based payments, holiday pay Mecca CGU 2.0 Depreciation savi
Slide 57: Operating profit reconciliation - Hard Rock
Operating profit* reconciliation - Hard Rock £m £m Operating profit* - UK GAAP 27.8 IFRS adjustments: Operating lease costs 0.4 Reclassified as finance leases Employee benefit costs (0.3) Share based payments, holiday pay IFRS adjustments 0.1 Operating profit*- IFRS 27.9 * - before exceptional items
Slide 58: Operating profit reconciliation - Deluxe Film
Operating profit reconciliation - Deluxe Film £m £m Operating profit - UK GAAP 57.4 IFRS adjustments: Goodwill amortisation 3.0 Goodwill no longer amortised Acquired intangibles amortisation (0.1) Excess consideration on intangibles Employee benefit costs (0.9) Share based payments, holiday pay Othe
Slide 59: Financing costs reconciliation
Financing costs reconciliation £m £m 2004 Net financing costs - UK GAAP 37.3 DMS interest 0.4 Presentation 37.7 IFRS adjustment: Leases 2.7 Finance cost of reclassified leases Associates (0.5) Presentation Foreign exchange on I/co loans (11.4) No impact on net assets (9.2) 2004 Net financing costs -
Slide 60: Net assets and net debt
Net assets and net debt As at 31 December 2004 UK IFRS GAAP Adjs IFRS* £m £m £m Net assets 414.7 (14.7) 400.0 Net debt 606.7 29.6 636.3 * IFRS net assets at 1 January 2005 will be amended to reflect adoption of IAS 32 & 39 Appendix 2
Slide 61: Net assets reconciliation
Net assets reconciliation £m £m 2004 net assets - UK GAAP 414.7 IFRS adjustments: Opening net asset adjustment (24.4) 2004 adjustments: Income statement adjustments 104.4 As per restated income statement Foreign exchange on I/co loans (11.4) Taken to income statement under IFRS Tax (15.3) Dividends
Slide 62: Net debt reconciliation
Net debt reconciliation £m £m 2004 Net Debt - UK GAAP 606.7 IFRS adjustments: Finance Leases 31.0 Land and building leases split into component parts before lease classification test performed DMS net debt (1.4) transferred to held for sale IFRS adjustments 29.6 2004 Net debt - IFRS 636.3 As at 31 D
Slide 63: Summary
Summary • IFRS adoption will not materially impact – 2005 adjusted profit – How the business operates • Additional 2005 considerations: • IAS 39 adopted 1 January 2005 – Amortisation of equity component of convertible bond (2005 onwards) – IAS 32/39 adoption will increase P&L volatility • Full year
Slide 64: Appendix: Mecca CGU adjustment
Appendix: Mecca CGU adjustment UK GAAP • Impairment tests performed for the business as a whole • The future cash flows from Mecca support the carrying value IFRS • Impairment tests performed at individual club level • A number of clubs impaired. Net assets reduced by £43.7m • No uplift for clubs wh
Slide 65: Appendix: Foreign exchange on inter-company loans
Appendix: Foreign exchange on inter-company loans UK GAAP • Foreign exchange movements on inter-company loans taken to reserves • These movements net off against foreign exchange on translation of foreign subsidiaries’ inter-company loans on consolidation IFRS • Foreign exchange movements on inter-c
Slide 66: Appendix: Lease accounting
Appendix: Lease accounting UK GAAP • Land and building leases accounted for as a single, combined lease • Majority of the leases were classified as operating leases IFRS • Land and building leases split into their component parts • Some separate building leases now classed as finance leases • Leased
Slide 67: Appendix: Business acquisitions
Appendix: Business acquisitions UK GAAP • Excess consideration classified as goodwill • Amortised over the shorter of 20 years and useful economic life IFRS • Separately identifiable intangible assets recognised and amortised over their useful economic life • Goodwill not amortised but reviewed annu
Slide 68: Appendix: Tax
Appendix: Tax UK GAAP • Deferred tax provided on timing differences IFRS • Wider in scope than UK GAAP • Requires deferred tax to be provided on all temporary differences • Awaiting HMRC clarification on treatment on some adjustments • Decreases deferred tax asset by £20.1m • Group’s effective tax r