UK live casino and bingo hall operator Rank Group LON:RNK reported full year results on Thursday this week. The group, trading under Grosvenor, Mecca bingo and Enrancha brands issued a disappointing set of results, topping off a dismal year for the company in which profit expectations have been continually revised downwards due to spiralling costs and lower customer spend.
Results for the full year showed a 98% jump in gaming revenues compared to the pandemic affected year prior at £644m, however this result remained below pre-pandemic levels in 2019 of £715m. Operating profits also looked healthier than the year prior at £40.4m versus a loss of £82.4m in 2019. However, profits were also much lower than 2019 – a year that delivered £104.2m in underlying operating profit. Rank did meet its revised expectations for underlying operating profit, however at the start of the year the group expected £55-65m of operating profit.
Poor performance at a number of Rank Group venues has been driven primarily by lower footfall than prior years, as venues have attracted less visitors. Within London, reduced levels of tourism has hampered visits to landmark venues. Outside London, visits also remain subdued, with a high likelihood that pandemic lockdowns reduced the habitual customer’s dependence on live venues. Rank Group also admitted that Mecca Bingo venue visits were down 32% on 2019, with a large drop off in elderly customer visits due to increased anxiety of customers aware of the risk of contracting covid-19.
“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. 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.” Chief Executive John O’Reilly
In the full year update, the group also shed light on the impact that cost inflation is having on the business. With large, energy intensive live venues across the UK, Rank Group has faced soaring energy costs as wholesale prices have risen across the last year. In FY 2022 the group saw energy costs nearly double to £23.2m from £12.9m in 2019. The company issued expectations for a whopping £46m in energy costs in 2023. During the update the company also noted facing significant increases in labour costs and difficulty recruiting and retaining staff.
Digital operations show the way forward
A bright spot within Rank Group’s results was the performance of its digital operations, which have managed to grow 4% above levels seen the year prior, when digital gaming levels were at markedly high levels due to the pandemic. The group recently acquired Stride, a UK online gaming operator in 2019, which it has been integrating its online operations onto Stride’s proprietary platform. In a good sign that the new platform is a hit with customers, Rank Group brands on the platform grew 31% year over year. With spiralling costs and sluggish footfall at live venues, the group is set to prioritise digital engagement to boost overall results in the coming years.
With lacklustre results in 2022, the group continues to focus its strategy on revamping its store estate, integrating digital platforms into the customer experience and right-sizing the underperforming Mecca Bingo venues (7 closed in 2022). With £19m of net cash on the balance sheet, the group likely has liquidity to fund investments in the current venue network without tapping investors for fresh capital. However, with such a challenging environment set for 2023, it is unclear if these initiatives will be enough to turn-around the business.
Rank Group margins under pressure
As for outlook, the company noted trading in the first seven weeks of 2023 has been 3% ahead of the prior year. However with a cloudy economic backdrop for Rank Group in 2023 the company has decided not to provide financial estimates for the year ahead, and warned of further profit margin pressures driven by cost inflation forecast in the coming year.
With a lack of tangible profit estimates to draw from, and no clear sign of a turnaround in 2023, Investors ought to avoid betting on Rank Group and setting sights on the number of UK listed gaming operators that have higher exposure to digital gaming revenues, thus less exposed to cost inflation such as 888plc, Entain and Flutter.
