Chief executive's Q&A 2019/20


How would you summarise the Group’s financial performance for the year?

I think it was the great Jimmy Greaves who first coined the phrase that football is a game of two halves. Well this was certainly a year of two halves. The Group made great progress in the first half of the year, following on from the much improved performance in the second half of 2018/19. At the interim results in January we announced underlying NGR growth of 10% with Grosvenor venues growing 15% and our digital businesses growing 14%. Underlying operating profit was up 87% year on year at £59.8m for the six months to December 2019. This strong performance continued through January and into February 2020. Towards the end of February news coverage moved from Brexit to the growing emergence in Europe of COVID-19 and by 19 March all of our venues businesses were closed.

Our immediate priority following the closure of Grosvenor and Mecca in the UK, Enracha in Spain and our casino in Belgium was to reduce the rate of cash burn. Before any mitigating actions our cash burn rate was set at £25m per month. With action taken to cut, reduce or defer payments to suppliers and landlords, plus the enormous help we have received from government support in the UK and Spain, we were able to cut the rate of monthly net cash outflows to £10m. Contributing to this has been the continued strong growth in our digital businesses with LFL revenue growth increasing to 31% in H2.

Our second half underlying LFL operating loss of £13.0m is disappointing but inevitable given the forced closure of our venues businesses. Our key focus as we approached the year end has been how we successfully reopen our businesses. We have and will continue to manage the cash in the business very tightly. Clearly the macroeconomic environment will be challenging for some time to come and the social distancing measures have applied in our venues have reduced our operating capacity. Nevertheless, we entered this unprecedented global crisis with a strong balance sheet and a growing business and I am confident that we have both the quality of people and the customer propositions to see the Group recover and to deliver good financial returns to our shareholders.

With the transformation programme in its second year, what have been the key deliverables in the year?

A great deal has been achieved in the past 12 months despite the inevitable challenges of the closure of our venues during the COVID-19 lockdown. In October 2019, we completed the successful acquisition of Stride Gaming plc which helps us further build scale in our digital business. This follows on from the acquisition of YoBingo in 2018. With Stride Gaming we now have our own proprietary technology within the Group and we are investing in this platform so that we successfully migrate the Grosvenor and Mecca digital businesses in the coming year, delivering significant cost synergies in the process, and quickly develop out further propositional enhancements for our customers. This will include further developing our multichannel offer for Grosvenor and Mecca customers. We launched Grosvenor One, our omni-channel service, across the estate in April 2019 and this has already proven a hit with our customers. Being able to use account funds across both venues and online and to access those funds in any of our venues has been a very important underpin to the Grosvenor brand’s 24% growth in online revenues this year. In-house proprietary technology also provides the Group with the capability to scale our digital business through international growth.

Our investment in the Grosvenor and Enracha estates contributed to the first half growth rates in both businesses. In Grosvenor, we have been investing in the gaming product offering to provide an enhanced customer experience. New electronic roulette terminals and game formats and new roulette tables and wheels to add excitement to the game, and new venue formats such as our new casino design in Sheffield and a very different customer proposition for a younger demographic in Pier Nine, our new gaming concept in Brighton. The good news is that when consumer confidence returns we have tried and tested customer propositions offering significant further mileage across the Grosvenor estate. In Spain, our investment in the Enracha Stadium concept, which delivers an enhanced sports betting and machine gaming experience adjacent to the bingo facilities, has proven very popular with our customers and has helped us to broaden our reach. In Mecca, the emphasis has been on the role our club plays within the local community, something which has continued through lockdown with the hugely important and successful community kitchen initiative providing free meals to NHS and emergency service workers and to elderly and other vulnerable people needing help in the crisis. On reopening, we have broadened the Mecca proposition providing a safe community entertainment facility with, of course, bingo at its core.

Providing an ever-safer gambling environment for our customers remains central to all that we do and this year we have devoted more management time to this than ever before. We have been trialling a new entry customer identification system for Grosvenor, now rolled out across our estate, to help us better monitor customers and identify potential signs of at-risk behaviour. Knowing who is in our venues in real time also provides added protection to our customers during the COVID-19 crisis. Affordability assessments are being introduced earlier in the customer relationship and a range of other measures to better capture behaviour in real time and assess potentially at-risk gambling behaviour. In our digital businesses, the same very much applies with increased sophistication in our customer monitoring tools and interventions being made with customers at much lower levels of play introduced during the period of lockdown.

On reflection, what would you say has been the principal successes in the year?

The overriding success of the past year has been a growing confidence within the business of the opportunities open to the Group. In autumn 2018, we set out on a transformation programme to turn around the fortunes of the Group. The programme has delivered a framework for growth by providing a rigour to the Group’s planning and implementation of key initiatives. Not everything has gone according to plan, it never does, but most things have and the results have driven a growing confidence that I am certain will survive the current crisis and see the Group thrive when our venues fully reopen to entertain our customers free from social distancing capacity constraints.

There have been many successes in financial year 2019/20, the successful acquisition of Stride and the progress being made on its integration into the Group, the strong growth rates being delivered in our Grosvenor and Mecca digital businesses, the return to growth of Grosvenor venues and the excellent returns we have been seeing on capital investment in the customer proposition, a renewed energy in Mecca to increase the relevance of the customer offering within the local community, strong growth in Enracha, the return to growth of the YoBingo business in Spain and strong growth in our Belgian casino before lockdown. Most importantly of all in terms of successes has been the growing management capability within Rank. We are a hospitality business and our strength is our people. I am immensely proud of the drive and initiative of my colleagues across the Group and their commitment to both entertaining and, at this unprecedented time, supporting our customers.

It has been an unprecedented time, looking back at the last few months what are your thoughts on how the Group has navigated through the COVID-19 crisis and what do you see as the impact going forward?

The amazing initiative and innovation shown by colleagues during lockdown will underpin the successful re-emergence of the Group from the COVID-19 crisis. From our community kitchens in Mecca and Grosvenor venues, delivering thousands of free meals every week, to online bingo rooms for individual Mecca Club customers to chat with their friends and play bingo for free, to our Mecca Friend programme in which colleagues called regular customers just to check in to make sure they have been successfully handling lockdown, our colleagues have demonstrated what top class hospitality people do best, and that is looking after people, making sure they have whatever support they need and are having fun. Our role as the leadership team is to ensure that we have a laser focus on the experience of our customers and of our colleagues as our venues reopen for business. Central to the success of reopening our venues is the protective measures we are taking to ensure a safe environment for our colleagues and our customers. Social distancing measures present us with challenges, but we typically operate large venues with limited physical capacity constraints and we are confident that with the right support, our colleagues will ensure our customers return to once again enjoy the experience.

As we enter the new financial year, what do you see as the Group’s priorities for the short to medium term?

Here in the UK, the Government has announced a review of gambling legislation. The 2005 Gambling Act introduced eight new small casino licences and eight new large casinos. The expectation at the time was that if these venues, with significantly more gaming machines than a casino licensed under the 1968 Act, and, in the case of large casinos, sports betting facilities, proved not to increase the risk of problem gambling, all casinos would be harmonised onto one set of licensing conditions. Whilst the new legislation is likely to focus more on the changes within online gambling since the 2005 Act was passed, we will be seeking to demonstrate to Government the benefits to the consumer, to tourism and to the Treasury of changes which will enable investment into the UK casino estate.

The efforts to drive scale in our digital business have certainly helped the Group during the COVID-19 crisis. The continued growth in Mecca and Grosvenor online, the success of the Grosvenor One omni-channel service for our venues customers and the acquisitions of YoBingo in Spain and Stride Gaming plc in the UK have significantly increased the share of the Group’s revenues taken online. This trend will continue going forwards. We are well advanced with the development of the Stride platform and anticipate beginning the migration of the Rank brands in the coming 12 months. Having proprietary technology in-house will also help us accelerate our development programme to further improve our customer offering and to begin driving growth in new markets.

From a financial perspective, it will take some time for the Group to fully return to where we were heading coming into this crisis. However, we entered with a strong balance sheet which, along with the huge support from Government, has enabled us to withstand the long period of closure and navigate our way through. No doubt we will be in a different competitive environment as we emerge from the COVID-19 crisis, an environment which will throw up opportunities. The focus of our planning has been centred on ensuring our venues can quickly pick up where they left off so that the Group can restore strength to its balance sheet, provide returns to our shareholders for their continued support and invest in, and take advantage of, the opportunities available to us to grow and develop our business.


John O'Reilly, Chief Executive

9 September 2020