During 2010, Rank recorded another year of growth in adjusted earnings per share, driven by continued operational improvements and further debt reduction. At the same time we continued to build for the future, investing in our assets, strengthening our team and improving our capabilities in key strategic areas.

During the year, our brand teams served more than 2.5 million customers, with growth across each of our businesses. Customer visits increased by 1.7% to more than 22 million and average spend per visit improved by 3.4% to £25.30.

The Group’s net promoter score, which measures the propensity of customers to recommend our brands, increased to 38%, with the strongest improvement from Mecca Bingo.

Group key performance indicators (KPIs)

	2010	2009
Customers (000s)	2,514	2,330*
Customer visits (000s)**	22,441	22,068
Average revenue per customer (£)	225.86	231.76
Spend per visit (£)	25.30	24.47
Online-offline crossover***	2.90%
Net promoter score	38%	37%

1. *Re-stated to adjust for customer cross-over between brands and channels.
2. **Excludes Rank Interactive.
3. ***Percentage of UK customers playing online and offline with Rank brands.

Moving into 2011, the consumer environment remains challenging with higher sales taxes in both Great Britain and Spain; as well as the introduction of a full smoking ban in Spain. Nevertheless, the Group has started the year well with growth in like-for-like revenue and increases in customer visits in our two largest businesses, Grosvenor Casinos and Mecca Bingo.

We aim to complete a refinancing during the second half of 2011, due to the expiry of our existing banking facilities in 2012. Whilst the lending environment is not as benign as it was in 2007 (when we agreed our current banking facilities), the Group’s operating performance and substantially reduced net debt levels have put us in an advantageous position.

In each of our markets, we have the opportunity to achieve sustained growth in operating profit through stimulating consumer demand for our brands and broadening brand distribution both via land-based venues and remote media.

Summary of results

During 2010, Rank achieved a 14.6% year-on-year increase in adjusted earnings per share. This performance was driven by revenue growth across all four businesses, effective management of operating costs and lower financing costs.

	Revenue*			Operating profit**
£m	2010	2009		2010	2009
H1	281.1	266.0		28.6	30.2
H2	286.7	274.0		33.4	27.8
Group	567.8	540.0		62.0	58.0

1. *Before adjustment for free bets, promotions and customer bonuses.
2. **Before exceptional items.

Group revenue of £567.8m was 5.1% ahead of 2009 (3.1% on a like-for-like basis), driven by increases in customers, customer visits and spend per visit.

Operating costs rose by 4.3%, principally as a result of longer opening hours and an increased number of venues. Group operating profit increased by 6.9% to £62.0m.

	Revenue*			Operating profit**
£m	2010	2009		2010	2009
Grosvenor Casinos	238.6	220.0		36.0	30.9
Mecca Bingo	234.5	233.0		29.7	32.3
Top Rank España	37.0	36.2		6.8	5.6
Rank Interactive	57.7	50.8		7.9	7.5
Central costs	-	-		(18.4)	(18.3)
Group	567.8	540.0		62.0	58.0

1. *Before adjustment for free bets, promotions and customer bonuses.
2. **Before exceptional items.

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Grosvenor Casinos made the largest contribution to Group revenue and Group operating profit. Revenue improved by 8.5% to £238.6m as a result of sustained like-for-like growth in customer visits, particularly in our ‘G Casino’ venues. Operating profit increased by 16.5% to £36.0m.

Mecca Bingo grew revenue by 0.6% to £234.5m but operating profit declined by 8.0% to £29.7m, largely as a result of increases in taxation.

Revenue of £37.0m from Top Rank España was 2.2% higher than in 2009, despite the relative weakness of the euro. In local currency, revenue increased by 6.2% as a result of rising customer visits and higher average spend per visit.

Revenue from Rank Interactive increased by 13.6% to £57.7m, with meccabingo.com generating the majority of the growth. An increase in marketing costs to build our brands online led to a slight weakening in margin but nevertheless operating profit increased by 5.3% to £7.9m.

Central costs of £18.4m were £0.1m higher than in 2009.

The Group’s effective tax rate was 27.7% (2009: 29.0%); whilst adjusted net interest costs of £6.8m were £2.7m lower than in the prior year as a result of reduced borrowings and lower interest rates.

Net debt

During 2010, we reduced Group net debt from £186.8m to £123.4m as a result of positive operating cash flow and a number of VAT refunds. These items are explained in detail within the finance review which is available to download here.

Rank’s stated capital structure policy is to operate at or around 2.5 times net debt to EBITDA. At 31 December 2010, Rank’s trailing 12-month net debt to EBITDA ratio was 1.3 times, substantially below its target range.

Rank believes that it is prudent to retain balance sheet flexibility until such time as appeals from Her Majesty’s Revenue and Customs (‘HMRC’) against the Group’s VAT refunds are fully and finally resolved. We expect the European Court of Justice to deliver a final ruling in this matter within the next 18 months.

Regulatory and tax change

Through our engagement with regulators and governments we seek fairness and consistency in the application of taxation and regulation to our business activities.

During 2010, the British Government opened consultations on a range of fiscal and regulatory changes relating to the gaming sector. Rank responded to each of these consultations. Copies of Rank’s responses are available from www.rank.com/our_industry.

Proposal	Department	Rank response
To create a more flexible regime for the allocation of B3 amusement machines	Department for Culture, Media and Sport	Supports recommendation
To create a licensing regime for offshore online gaming companies	Department for Culture, Media and Sport	Supports fair licensing regime
To reform the taxation of amusement machines	HM Treasury	Supports fair reform of taxation

STATE OF PLAY

During 2010, Rank operated branded gaming-based entertainment businesses aimed at customers in three jurisdictions - Great Britain, Spain and Belgium.

Great Britain is by far the largest of Rank’s markets, representing approximately 90% of Group revenue and offers the opportunity for Rank to operate its strategic model of integrated online-offline gaming. Whilst the online opportunity in Spain and Belgium remains largely untapped at present, nascent regulation appears set to change this within the next 12 months.

The Group chooses to operate in these markets due to their size, growth potential, regulatory stability, geographical proximity and their cultural acceptance of gaming as a form of entertainment.

Great Britain

Adult population	48.9 million		Size of gambling market	£9.9bn
GDP per capita	£23,676		Gambling spend per adult	£202
Unemployment rate	7.7%		Broadband penetration rate	67%
Proportion of Rank Group revenue	90%		Smart phone penetration rate	38%

1. Source: Company research; Euromonitor International.

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Overview

Great Britain is one of the largest, longest-established and most stable gaming and betting markets in Europe.

This year marks the 50th anniversary of the country’s first licensed bingo clubs and high street betting shops; a regulated casinos industry has been in place for more than 40 years; and Great Britain was one of the first jurisdictions in the world to recognise the legitimacy of remote gambling.

This relative stability, allied to demand growth potential (via investment and regulatory progression) and Rank’s long operating experience makes Great Britain an attractive market.

According to the Gambling Prevalence Survey, published in February 2011, 73% of adults in Great Britain participated in at least one form of gambling during 2010. By far the most popular activity was the National Lottery, followed by other lotteries, scratchcards and sports betting.

An estimated 13% of the adult population played gaming machines whilst 9% played bingo (8% in licensed clubs) and 5% played casino games (4% in licensed casinos).

Economic outlook

The UK economy grew by 1.8% in 2010 whilst unemployment stood at 7.7%. According to forecasts from Goldman Sachs, GDP will grow by 2.4% in 2011.

Political and regulatory changes

The key change to the political and regulatory landscape in 2010 was the replacement in government of the Labour Party by a Conservative-Liberal Democrat coalition, following the General Election in May.

Whilst, little substantive change has taken place since the election, there are signs that the coalition may adopt a fairer and more supportive position towards the licensed gaming industry, compared with the latter years of its Labour predecessor.

• In November 2010, the Department for Culture, Media and Sport proposed changes to amusement machine regulations that would permit licensed bingo clubs and amusement arcades to offer customers a higher number of B3 jackpot gaming machines. The consultation period for this change has now closed and an announcement regarding implementation is expected during the first half of 2011.
• The Department for Culture, Media and Sport is expected to follow up plans to create a licensing regime for offshore online gaming and betting operators.
• The Conservative Party has stated that it considers the rate of bingo duty applied to licensed bingo clubs to be too high and has pledged to reduce it from 20% to 15% “at such time as public finances permit”.

Tax changes

There have been a number of changes to business taxation in Great Britain; and a number of changes to gambling taxation have been proposed:

• On 4th January 2011, the standard rate of VAT increased from 17.5% to 20.0%.
• The basic rate of corporation tax will reduce from 28% to 27% this year and is expected to be lowered further to 26% in 2012.
• HM Treasury has announced that the taxation regime for amusement machines will be reformed from 2012, with the current application of VAT plus a fixed annual machine charge being replaced by ad valorem duty rates.
• Whilst no announcements have yet been made on the subject, it is Rank's view that in time offshore online gaming operators generating revenue from UK customers will be subject to UK gaming duty.

Spain

Adult population	37.8 million		Size of gambling market	€9.5bn
GDP per capita	€22,926		Gambling spend per adult	€251
Unemployment rate	20.2%		Broadband penetration rate	53%
Proportion of Rank Group revenue	7%		Smart phone penetration rate	17%

1. Source: Company research; Euromonitor International.

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Overview

Spain is one of the largest gaming markets in Europe and has one of the highest levels of gambling expenditure per head.

The present regime for gaming and betting came into effect in 1977 following more than four decades of prohibition. Gaming machines and lotteries are the most popular forms of gaming in the country, followed by bingo and casino games.

Regulation and taxation of the industry is largely devolved to the country's 17 autonomous communities and while this has resulted in some regional variances, it has also created an environment for gradual regulatory evolution.

Since 2008 land-based sports betting has been permitted in the Madrid and Basque regions; and Madrid has also been leading efforts to legalise internet gambling. The Spanish government has indicated that it intends to create a federal framework for the taxation and regulation of internet gambling and Rank expects this to take effect during 2012.

Economic outlook

The Spanish economy declined by 0.2% in 2010*, emerging from an 18-month recession during the first quarter of the year. At the end of the year, unemployment was estimated at 20.2%, representing a 2.2% point increase since 2009.

Goldman Sachs forecasts that the economy will grow in 2011, with a 1.0% improvement in GDP.

Political and regulatory changes

• In January 2011, a full ban on smoking in public places was introduced. This replaced a previous partial ban which permitted smoking to discrete sections of a premises.
• A framework for the regulation and taxation of internet gambling is due to be published during 2011 with implementation likely in 2012.

Tax changes

• From 1 July 2010, the standard rate of VAT increased from 16% to 18%.
• From January 2011, the rate of bingo duty applied in the autonomous community of Madrid was reduced from 22% of gross stakes to 15% with a corresponding increase in the customer prize pool from 64% to 70% of gross stakes.
• In February 2011, the Spanish government announced that in a regulated market, remote gaming operators would be subject to taxation at 25% of gross profits.

Belgium

Adult population	8.6 million		Size of gambling market	€3.3bn
GDP per capita	€32,607		Gambling spend per adult	€384
Unemployment rate	8.5%		Broadband penetration rate	64%
Proportion of Rank Group revenue	3%		Smart phone penetration rate	23%

1. Source: Company research; Euromonitor International.

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Overview

Belgium is a small but well-established and relatively stable market for gambling, an activity with a rich cultural heritage: the country’s first recorded lotteries date back to 1465; whilst the casino at Spa is the oldest surviving casino in the world.

Political and regulatory changes

Since April 2010, the country has been operating without a full government. A provisional administration has continued to govern the country in the absence of a majority party. Whilst this position has created some political uncertainty, it has not blocked reform of the country’s gambling industry.

• In January 2011, regulations came into effect for the legalisation of online gambling in Belgium. A number of Royal Decrees need to be passed in order to activate the regime. The first online sports betting licences are likely to be granted during the first half of 2011, with online casino licences expected to follow later in the year.
• Under current regulations, online gambling licences will be restricted to land-based licence holders.

Tax changes

• As the legislation is currently drafted, remote gaming taxation will be levied at between 11% and 15% of gross profits.

Strategic Overview

Rank’s aim is to generate wealth for shareholders by achieving sustainable growth in earnings and dividends per share.

In order to achieve our aim, we have developed a strategy that is defined at both a Group level and a brand level.

• Group strategy – provides a framework to determine long-term decisions about which markets and sectors to operate in and how to allocate capital between them.
• Brands strategy – provides a framework for operational decisions within our brand portfolio.

Group strategy

Our Group strategy is to develop gaming-based entertainment experiences, offered to customers via licensed venues and remote channels in markets where the regulatory and fiscal framework offers the opportunity to generate attractive, sustainable returns.

In order to access these markets, we have developed a portfolio of brands aimed to meet the gaming and entertainment preferences of a wide range of customers and for a variety of occasions. Behind these brands are a range of common competencies (e.g. hospitality, catering, machines management) and shared services (e.g. procurement, finance, human resources, property management).

As a business operating in a highly regulated sector of the leisure and entertainment market, three key capabilities are core to our strategy:

• Customer focus – we use customer insight (based on analysis of quantitative data and qualitative intelligence) to guide service and product evolution;
• Responsible operation – the way that we look after our customers not only determines the sustainability of our customer relationships but also our position with regard to regulators, governments and the broader communities within which we operate; and
• Constructive political engagement – we work with governments and regulators to shape a regulatory and fiscal environment that supports both our own development and responsible policy objectives.

We perceive growing convergence between land-based and remote gaming and see the ability to meet consumption demand across a range of channels as an increasingly important advantage in a competitive market.

Within the markets where we operate, licensed gaming venues such as casinos and bingo clubs offer an attractive combination of growth potential and stability. Relatively low levels of market penetration (only 5% of adults in Great Britain played casino games in 2010) and changing regulations offer the opportunity to modernise in order to stimulate demand growth. Meanwhile, important licensing restrictions and the requirement for high levels of probity add a defensive aspect to the sector.