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Edited Transcript of RNK.L earnings conference call or presentation 22-Aug-19 9:30am GMT

Full Year 2019 Rank Group PLC Earnings Presentation

London Aug 26, 2019 (Thomson StreetEvents) -- Edited Transcript of Rank Group PLC earnings conference call or presentation Thursday, August 22, 2019 at 9:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* John O'Reilly

The Rank Group Plc - CEO & Director

* William Floydd

The Rank Group Plc - CFO & Executive Director

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Conference Call Participants

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* Ivor Jones

Peel Hunt LLP, Research Division - Analyst

* Paul Ruddy

Goodbody Stockbrokers, Research Division - Research Analyst

* Victoria Elaine Pease

Edison Investment Research Limited - Analyst

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Presentation

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John O'Reilly, The Rank Group Plc - CEO & Director [1]

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Right. Good morning, everyone. Welcome to Rank Group's annual results for the year to the end of June, 2019. Thank you for joining us this morning, both here in person or via the web. You're very welcome.

In addition to the results, RNS this morning, the Rank Board was also delighted to announce that Alex Thursby, a Non-Exec Director and Chair of our Audit Committee currently, will be appointed as Chair of the group following conclusion of the AGM on the 17th of October. So that's the other announcement we've made this morning.

The appointment follows the announcement that we made in May, that Ian Burke will not seek reelection -- decided not to seek reelection at the AGM. So that's that.

Back to the prelims. Bill will take you through the numbers in a moment, but before he does, just a quick comment on the kind of overall picture. You'll have seen from the results announcement we've had a very much better second half of the year than we had a first half, having made just GBP 30.3 million operating profit in the first 6 months of the year to close with a full year operating profit of GBP 72.5 million, I think, reflects that big improvement that we've had in the second half.

The transformation program we began planning as a team shortly after I arrived at Rank in May last year is now taking its effect on the business. We've made significant efficiencies in the growth of the business along with savings and procurement, property, free bet efficiencies in the Digital business and in central support costs.

More importantly, we're beginning to drive revenue growth. And with all businesses growing revenue year-on-year in the second half, and that's probably the bit that I'm most delighted by.

And we strengthened the management team, and we've announced the acquisition of Stride Gaming. We're expecting to complete the transaction in the final quarter of the calendar year, and that will drive scale in our Digital business and whilst it's still early days and we've made an encouraging start to this new financial year.

We set out on a program to transform Rank Group, and we're pleased with the progress we are making. I'll run through some of the highlights of that progress, and will lay out what we're doing next in the transformation program after Bill has taken you through the financial performance numbers for 2018/'19.

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William Floydd, The Rank Group Plc - CFO & Executive Director [2]

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Thank you, John, and good morning, everyone. Let me start by taking you to the overall financial headlines.

Like-for-like revenue was in line with the prior year. After the weak start to the year with revenue declining by 5% in Q1, revenue was flat in Q2 and Q3 and grew by 4% in Q4.

Like-for-like operating profit was GBP 72.1 million. After delivering GBP 30.1 million in H1, we delivered on our transformation commitments in the second half. And as a result, H2 profitability was GBP 42 million.

Exceptional costs were GBP 28.6 million after tax, and I will take you through this in more detail later on.

Adjusted EPS of 14.8p, after delivering only 6.1p in H1, represents the improvements made by the business in the transformation program. We recognize the importance of the dividend to our shareholders, and are pleased to be able to recommence, albeit modestly at this stage, growth in the dividend to 7.65p for the year.

Through a combination of our strong balance sheet, good dividend cover and the benefits that transformation can deliver, we remain confident that we can grow the dividend in the future.

We ended the year with net cash of GBP 1.8 million, demonstrating that the business continues to be a strong cash generator.

Moving to the revenue and profit by segment. As a reminder, we modified our segments this year, moving the casino in Belgium into International venues and combining all our Digital brands into the Digital segment.

Revenue for the year was broadly flat with a 2% decline in H1 offset by growth in the second half of 2%. Both Grosvenor and Mecca declined by 2% on the top line, but with Mecca's cost focus throughout the year delivering flat profitability and the benefits of the casino operating model changes, delivered a 40% year-on-year improvement in Grosvenor's profitability in the second half.

International venues performed well with revenue up 1% and a strong cost focus improved profitability by 8%. The Digital segment increased revenue by 7% on the gross level and by 11% at the more important net gaming revenue.

Profitability was down by GBP 0.5 million with increases in Remote Gaming Duty, investment in building the team and depreciation offsetting the revenue increase.

The run rate of head office costs reduced in the second half but did not achieve the savings we targeted at the half year. With the Stride deal likely to conclude early in the second quarter of the financial year, we expect to secure further savings by consolidating the 2 head offices and leveraging Stride's offshore facilities in Mauritius.

Moving to the operational review of Grosvenor. Following the weak performance in H1, revenue grew in the second half by 1% with Q3 flat and Q4 ahead by 2%.

Overall, revenue decline in the year was 2%, so we're pleased with the turnaround in the second half. At an individual casino level, the standout performer was the Vic, where revenue was up by 12%, demonstrating the impact that can be made by an excellent GM and comparatively modest CapEx to improve the club layouts, upgrade machines and enhance the VIP facilities. Not all these initiatives are appropriate for all clubs, but we are taking these learnings and seeing where we can get similar returns elsewhere in the estate.

At the Barracuda, the club refurb has been well received, but we've had terrible luck on the tables. And in Q4, we completed a refurb of Sheffield. This was based on the Nottingham concept to create a club with broader leisure appeal and was achieved for half the investments of Nottingham.

Having delivered only GBP 19.3 million of operating profit in the first half, full year operating profit was GBP 44.7 million with GBP 25.4 million coming in the second half. This was driven by the successful implementation of the new casino operating model. We committed to delivering GBP 7.5 million of savings in the half, and I'm pleased to say the overall outcome is GBP 8.2 million. There has been little impact on customer service from the changes, and we're now looking at ways to refine and bespoke the model.

The full year impact of the operating model changes in the year ahead will be approximately GBP 1 million ahead of the GBP 18 million we committed at the outset of transformation. You will see in the RNS that we are uncomfortable with the accuracy of visit numbers in H2 following the model changes. Consequently, I won't talk through the visits or spend per visit. We still regard visit numbers as an important KPI and are working to install a tech-led solution.

In Mecca, revenue was marginally ahead in the second half following a 3% decline in H1 and was down 2% in the year. The rate of decline in visits moderated in the second half to 6%, having been down by 12% in the first half. Spend per visit was up by 8% with growth across the main stage game and slots.

Arresting the decline in visits remains the key strategic challenge for Mecca. We continue to trial new concepts such as Players and Bonkers to appeal to a wider audience.

Management of the cost base of Mecca continued to be strong. And despite the revenue decline of GBP 3.3 million, we held operating profit flat, largely through refinements of the [labor] operating model and better focus in our marketing campaigns.

We have today announced the disposal of 5 clubs for GBP 2.2 million. These clubs all have leases ending in 2021. The impact on next year's numbers will be to reduce like-for-like revenue by GBP 7.8 million and with a nonmaterial impact on operating profit. We have also taken the decision to close Luda with an exceptional charge of GBP 2 million to close the sites.

Turning to International venues. The business has performed in line with our expectations. Enracha revenue was flat overall with 6 of the 9 clubs in growth. We have invested in some modest club layout redesigns and machine upgrades during the fourth quarter, and early indications are positive. The casino in Blankenberge continued its good performance through the second half and grew by 3% in the year.

On Digital. As a reminder, the Digital segments now comprises the previously named UK Digital segment along with the Enracha Digital business and YoBingo!.

On an NGR basis, revenue grew by 11% with 7% in H1 and 14% in H2. Growth was driven by improvements in bonusing across both Mecca and Grosvenor. Grosvenor One was rolled out between January and April. We have now signed up over 80,000 customers. There's still much to do to optimize the customer journey and improve the proposition, but early signs are encouraging.

In Mecca, we launched the Daily Retention Game in April, which has increased both customer numbers and first-time depositors.

Operating profit in Digital declined by GBP 0.5 million. The key increases in the cost base were the increase in Remote Gaming Duty on the 1st of April which impacted us by GBP 1.9 million, a further GBP 0.8 million increase in RGD on how bonuses are treated, investments in people to strengthen our capability, and increased depreciation as Grosvenor One and the content management system were brought into operation.

The full year impact of the RGD changes will be a further GBP 6 million, assuming the current annual growth trajectory is maintained and a further GBP 4 million from our full year depreciation charge on Grosvenor One and CMS.

Revenue in YoBingo!, which is excluded from the like-for-like numbers, grew by 18% in the year, with growth substantially coming in the first half. In the second half, growth was much more muted, reflecting a slowdown in the market and increased competition. Going forward, we expect to drive growth in the year ahead from the launch of YoCasino! and the expansion of the bingo brand in Portugal.

On the statutory income statement, the key items to draw your attention to here are the exceptional items, which I will go through on the next slide. On tax, the tax charge represents an effective tax rate of 17.2% on operating profit before exceptionals and was lower than the standard rate due to the provision released from prior years. I expect the effective tax rate for the year ahead to be in line with the headline cooperation tax of 18.5%.

As I said earlier, there are a number of exceptional items to take you through. Transformation costs were in line with our expectations at GBP 10.8 million, and I would anticipate transformation at half that level in the year ahead. We've also recognized the provision of GBP 8 million, which is our current best estimate of Rank's liability following a payroll audit undertaken by HMRC. The audit commenced in July last year and we are still in the process of working through the detail. Although none of our colleagues have been paid at a headline hourly rate below the national minimum wage, there are nevertheless individual cases where the technical legislation has been breached. The breaches arise over a period of 6 years. We expect the remediation itself to commence later this year and to conclude in the second half of the financial year.

As part of the requirement to carry out an annual impairment review of our intangible assets, we have written down the carrying value of 5 Grosvenor Casinos. This is a noncash charge. All these casinos are profitable and generate cash, but not at the level sufficient to justify the carrying value ascribed to them when they were acquired.

The other exceptional costs are GBP 2.2 million for Stride acquisition costs, GBP 1.4 million of onerous lease provisions, GBP 2 million of which is costs related to closure of Luda, and that's offset by GBP 0.6 million of provision releases where we've closed out some exposures slightly better than originally anticipated. There's a GBP 1.6 million financing charge based on how the accounting works for the contingent consideration on YoBingo!.

Finally, there is a tax credit of GBP 1.5 million in discontinued operations from the closeout of a long-running tax case in Italy at less than the amount we have provided.

Cash generated from operations was up 10% at GBP 113.1 million, predominantly representing the operating profits of GBP 72.5 million, a GBP 45.2 million add-back on depreciation and a working capital inflow of GBP 10.4 million, resulting in an inflow from operations of GBP 129 million with a GBP 15.9 million then spent on exceptionals and the cash flow from provisions made in prior years.

CapEx in the year of GBP 34 million was lower than we anticipated at the half year as we drove a more rigorous appraisal of capital investment.

Aside from the Brighton investment, we will be prioritizing smaller, incremental revenue-generating projects in the year ahead in the retail businesses.

In Digital, our priority is to improve customer journeys and enhance the product offering and targeting CapEx of between GBP 35 million and GBP 40 million for the year ahead.

Due to the changes in the timing of corporation tax payments where HMRC is moving from an arrears-based payment schedule to a schedule where large taxpayers will now pay all of their liability in the year in which it arises, we will pay 18 months' worth of tax in the next financial year.

Moving forward, we will be making some changes to the headline numbers that we report. Firstly, on revenue, we will move to net gaming revenue as our primary measure, and this is in line with the rest of the industry. The overall difference between GGR and NGR was GBP 51.4 million last year, and you will find the impact by segment in the appendices. The combined impact on NGR of closures and disposals is GBP 9.7 million.

Secondly, we will report the impacts of acquisition-related intangibles outside adjusted operating profit. Currently, GBP 3.2 million of amortization, which arises on the acquisition of Yo, is included within the GBP 72.5 million adjusted operating profit. Clearly, this will become a more significant balance assuming the Stride deal completes and will increase the reported adjusted EPS.

Third and finally, our initial work on IFRS 16, the new leasing standard, indicates that the impact on the income statement will be a reduction in rent charged to the income statements of GBP 40 million and a charge of GBP 31 million for depreciation, leading to an increase to operating profit of GBP 9 million, offset by financing charge, also of GBP 9 million. And therefore, I do not expect any material impact on EPS from IFRS 16. There are further disclosures on the impact in the back of your handouts.

Once the Stride deal completes, we will provide you with pro forma numbers to help you update your models.

So moving to guidance. Trading in the first 7 weeks since the end of the year has been encouraging, both in terms of revenue performance and continued tight control of the cost base. We also acknowledge this is against a weak set of comparatives. There are early signs of growth in revenue from our transformation initiatives, but this is offset to an extent by ongoing weakness in visits as well as ongoing economic uncertainty.

On costs, we expect to deliver ahead of the cost savings plan that we outlined at the outset of transformation. There are also cost headwinds to factor in, particularly the annualization of RGD for a further 9 months, which, as I said earlier, is GBP 6 million. And I expect depreciation to increase by GBP 4 million in the Digital business as we take the full year charge for Grosvenor One and CMS. Nevertheless, we expect to make good progress on profitability as the full year impact of the transformation cost savings flow through.

I'll now hand you back to John to take you through transformation and strategy.

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John O'Reilly, The Rank Group Plc - CEO & Director [3]

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Thanks, Bill. So as you've seen, we've made good progress in the second half. Operating profit for the full year is slightly ahead of consensus at GBP 72.5 million. And just to recap on some of the kind of key data points. Operating profit of GBP 30.3 million in the first half, grew to GBP 42.2 million in the second half. Like-for-like revenue declined 2.4% in the first half, before growing 2% in the second half.

Grosvenor venues revenue declined 4.7% in the first half and grew 0.9% in the second half. And it's worth saying Grosvenor would have delivered much stronger growth but for a weak margin and particularly from higher-value players in the second half where we had a table margin of just 15.7%, which compares with 19.2% table margin in the same period last year and 16% in the first half. And actually, 2 clubs were at the center of that, the Barracuda, which is a very nice and recently refurbished casino in Baker Street, #1 Baker Street, which -- and the -- it's proven very popular with our customers, it's worth saying, but too many of them beat us in the half. And so we had a table margin there of about GBP 6 million below what we would normally have expected. And at the Park Tower in Knightsbridge, we had a table margin impact of about GBP 4 million, the damage again being done in the second half of the year. So notwithstanding 2 difficult performances in 2 clubs, a much improved performance in the second half from Grosvenor.

Mecca venues revenue declined 3.3% in the first half and we were particularly hit by very hot weather last summer, but we grew albeit just by 0.1% in the second half, helped admittedly by soft comparisons with the prior year, but with the key revenue growth transformation that's just beginning to be delivered.

Enracha venues in Spain saw revenues back into growth in half 2. And the Digital business, excluding Yo, saw NGR growth of 7.4% in the first half step up to a growth of 14% in the second half. So good growth from the Digital business. And if you include Yo in that, we grew 21.1% NGR in half 1, and we grew 23.9% in the second half.

I highlighted this time last year that my first kind of -- first year key priorities were to increase our focus on the customer, to grow our Digital business, to drive cost efficiencies and to improve our organizational capability and all to be delivered within the framework of the transformation program, which revised a rigor around the process from an idea generation through to its implementation in the business with what I always call military precision.

Let me update you on just some of the key initiatives which has driven progress against each of those priorities. We've increased our investment in data science to drive insights and action. It's a really important area of focus for us with a new data strategy in place, and we've increased investment in both the data team and in data technology. And we're starting to see the benefits but we have a lot more building work to do.

We're taking a forensic approach to capital investment. We're pleased with the progress we've made with some key investments in the year delivering good early results. Notwithstanding the table margin, which was just 7.4% at the Barracuda, it is exceeding out our handle expectations. And that 7.4%, I should say, compares against our 2015 to 2018 average of 16.5% at the Barracuda. So you can see the size of the pain we've endured there.

The Vic on Edgware Road, was up 14% on visits during the year, and Bill's mentioned, it was up 12% on revenue. Where -- and at the Vic we improved the floor layout, and we've invested heavily in our electronic gaming products at the Vic.

At the Grosvenor, Sheffield refurbishment, we've increased our nongaming facilities, introduced more social gaming products. That's running ahead of expectations following its reopening in May. And we invested in gaming machines and electronic roulette right across the Grosvenor estate, ahead of the change in B2 regulations in betting shops, which came into effect on the 1st of April. And we've made improvements in the quality of our gaming machine offerings, both facilities and technology in both the Mecca business and in Enracha in Spain.

Grosvenor One, our single account and wallet omnichannel offering, rolled out across the state between January and April. To the end of July, over 80,000 customers have registered with Grosvenor One across the Grosvenor estate. 1/3 of those customers, 33%, are using the wallet in the venues, so loading money on to the wallet and using it in the venues. 20% of the 80,000 Grosvenor One customers are already Grosvenor Digital customers. And the balance of 80% are not. And of those, half of them have now created a username and a password to enable them to access their account online. And so far, and it's very early days, 10,000 of the 80,000 Grosvenor One customers have already played online with Grosvenor using their own deposited money. So early days, but a good step forward. We have a lot more work to do. The way I think about it is we've landed the technology, but we've got a lot of work to do in properly landing the consumer proposition.

We've withdrawn Play Points and replaced it with a new rewards program aimed at harnessing increased customer loyalty. And I'd say the same there, we've considerably more work to do as we move our focus from landing the technology to landing the customer proposition.

Our customer NPS scores are reaching all-time highs in Mecca, which is very pleasing to see. We've seen a slight dip in Grosvenor following implementation of the new operating model. That's to be expected, but we're still seeing extremely good scores from our customers.

We're gathering momentum in the Digital business with lots of key initiatives being landed in the year. In Digital launch Grosvenor One, we've delivered our new content management system. It's currently with a sample of 10% of Grosvenor customers online. It's a really important development because it brings control of the front-end customer interface on the web, mobile web and our apps in-house. And at launch, it also delivers much needed improvements in some of the key user journeys. The new concept management system for Grosvenor is delivering improvements in the key performance metrics at the site for the current 10% of our customers on the new CMS, and we intend making a full [cut over] in the next few weeks.

We've introduced a very popular Daily Retention Game for our Mecca customers. We've more recently launched a variant of that loyalty mechanic for Grosvenor customers. We've made improvements to the buy in bonus functionality in Grosvenor, and that was introduced in April, and we went live with a new cashier facility for Mecca customers in June. That's been well received, too. And it benefits both -- it makes depositing easier, it also makes withdrawing very, very much easier. And I'd add around those developments that we are very much on the kind of nursery slopes here. There's a lot of fundamental improvement still to be delivered to the quality of our Digital offering going forwards.

We acquired YoBingo!, you'll recall, in May, 2018, for EUR 52 million. It delivered NGR of EUR 14.4 million in the year, which is up 16% on the prior year, and an operating profit of EUR 5.5 million at preamortization costs.

Despite the growth slowing in half 2, the business has performed in line with our acquisition plan expectations. We've been busy building out the next phase of growth for Yo, resiting the technology team to Barcelona. That's now complete, and we're developing YoCasino! which we expect to launch in Spain in the next few weeks, once we've received the final clearances from the regulator. We're also expecting to launch YoBingo! in Portugal by January.

The acquisition of Stride Gaming we announced on 31st of May, it received approval from Stride shareholders on the 24th of July, and we're now expecting to close the transaction early October. Stride delivers us increased scale in Digital. It brings with it proprietary technology which hugely increases our growth capability. It strengthens our management team in the Digital business and delivers synergies. And integration planning with the Stride team is underway.

The new operating model, in terms of driving cost efficiencies for the Grosvenor business, was fully implemented between December and March. It simplifies the management structure within the venues and it improves team members scheduling.

As Bill said, we delivered GBP 8.2 million of cost efficiencies in the second half from the new operating model with a full year saving before the impact of national minimum wage and other wage inflation of GBP 19.5 million in the full year. So an additional GBP 11.3 million saving flowing into this current financial year from the changes in the Grosvenor operating model.

GBP 1.5 million of support office costs was secured in the year, and we expect an additional GBP 3 million savings to flow through into the current financial year.

And we did 10 property lease regears in '18, '19, and we've delivered annual savings of GBP 1.8 million. And we've also successfully secured annualized business rate reductions of GBP 1.3 million. And we've got a whole bunch of other procurement savings continuing to be delivered, and we expect that to accelerate into this year.

We've continued to strengthen the management team at all levels. In the year, we appointed 14 new General Managers across the U.K., Grosvenor and Mecca estates. Now the General Manager is absolutely critical to the success of the business, and we've seen significant benefits through strengthening our team during the year.

We've previously announced several changes to the senior team, and we've today announced Jonathon Swaine will join us in October as our Retail Managing Director following the departure of Alan Morgan. Alan left the business in July. Jonathon has been running the retail estate at Fuller's for the past 8 years as Managing Director of Fuller's Inns, and he brings considerable and relevant operational experience from a very relevant consumer-facing leisure business. So I'm delighted we persuaded Jonathon to join us.

Catrin White recently joined us from Sodexo as Retail Marketing Director to help drive developments in our Grosvenor and Mecca customer propositions. So this has clearly been a year of considerable change for colleagues across the group, but I'm delighted with the energy and spirit the teams have shown in implementing the required changes.

Our latest employee opinion survey shows good improvements in our employee Net Promoter Score and in our engagement scores, but we recognize we have a lot more work to do in this regard.

During the year, we reviewed and relaunched our purpose, our ambition, our strategy and our values, which will feature in our annual report and accounts to shareholders. We're in the customer service business. We're wholly dependent upon the success of our people in that regard, and we're very focused as a team on improving the culture and capability of our organization to deliver on the Group strategy.

So to what we have in store next. Now just some of the many initiatives which are [in train] feature on the next 3 charts in your deck, which we've updated from the interims presentation. Now we inevitably front-loaded cost efficiencies in the transformation program, so the focus increasingly moves to initiatives driving revenue. And there's a lot of activity taking place in each of our businesses. And I've just given you a sample of some of the kind of key initiatives here.

In the -- the first chart covers the all-important revenue growth streams. In the marketing effect in this workstream, we have a number of fundamental Digital customer journeys in the design phase, which we'll implement over the next few months. We're making good progress on attribution model and have a number of other developments in place to help optimize our acquisition and marketing investment. We currently have a very limited automation within our CRM activity, and that represents a big opportunity to improve life-cycle management, and with it, player loyalty, and consequently, customer values. In the Digital workstream, we've launched a new cashier for Mecca. We'll be launching that improved facility for Grosvenor customers next month. We've a development program underway to improve our Sportsbook presentation by bringing it into our content management system giving us control at the front end, which we expect to deliver by March next year. We're also working on a new proposition for high-value players within Grosvenor, which we expect to have fully rolled out by March.

In the International workstream, I've mentioned YoCasino! will launch in Spain next month. YoBingo! will launch in Portugal by January. We expect to open the first of our trial Enracha stadium slots, electronic roulette and sports venues in December, and we expect to have all 3 trial venues open by next summer.

We also have an ongoing program improvement in our existing Enracha bingo venues to improve the quality of the gaming machine offering, our electronic roulette and our sports betting offering.

Within Grosvenor, we've just about fully rolled out electronic roulette update program. We've got a little bit more work to do, but we're nearly there. We're rolling out food and beverage home delivery via Uber Eats in most of our Grosvenor and Mecca venues. [Dark kitchen's] a completely new development for us, but we've seen good levels of takeup so far. We're on-site next week in Brighton, where we are building and developing a completely new casino concept with an emphasis very much on leisure rather than simply on gaming. And we expect to open for business in February, giving us a few months to hone the offering in time for the spring and summer trade. We've got a brilliant location in Brighton, we're right opposite the pier, and we are extending the space to provide leisure-based gaming across 3 floors, a fantastic venue.

And we've made good progress with our VIP offering in London this year, and we've got further initiatives in play to further enhance our service for this element of our customer base. The slots upgrade program continues within the Grosvenor estate. And within Mecca, we have a program of work to grow our slots business in addition to developments around our current bingo and electronic bingo or cash line products. We've continued to hone our events and entertainment offering within the Mecca estate and have some big ambitions in that regard. And we have a considerable focus on the Mecca omnichannel proposition, not least because of the very large overlap that exists between our online customer base and our venues' customer base.

Work on cost efficiencies, of course, continues in each of the 4 workstreams. In Grosvenor, whilst we're focused on colleague scheduling within the operating modeling, we've yet to get the additional benefits of our new workforce planning software, which we have been -- which we'll trial in one of our regions in September, we've been trialing it in 2 venues, in Southend and in Sunderland, and it's going very well so far. We've also been trialing new process efficiencies in those 2 venues, several of which we expect to be rolling out during this calendar year.

In the support functions, we have a new contractor management process about to be implemented which will secure more [value add-back] contracts. We'll be using the integration of Stride Gaming to review and further optimize our support functions.

And further procurement efficiencies, as I've already mentioned, get delivered through an ongoing review of all our major supply contracts. We've already secured and launched a new beer contract with the introduction of Molson Coors across our estate, across both Mecca and Grosvenor. And we're reviewing all of our food and beverage supply agreements prior to October. Similarly, in facilities management, by next March and with our main technology supply agreements by December 2020.

In the property workstream, we'll be trialing 3 concepts to optimize underutilized space in our venues between now and next March, and we have an ongoing program of lease negotiations.

And some of the key deliverables in our critical enablers workstreams are highlighted here, I think you need to go back, Trevor, one for me, if you'd be so kind. In terms of critical systems we'll have a fully rolled out -- we'll have fully rolled out the new content management system for Grosvenor in the next few weeks and with some further enhancements between now and the end of the calendar year, and we expect to be launching for the first sample of Mecca customers by June next year.

In the data workstream, the current building work will deliver dashboards for Grosvenor and Mecca management teams by November. That sounds very obvious and easy stuff, but it's got to get delivered. We continue to work on building our data community across the business, and we finalize our new data warehouse and data lake by the end of this calendar year.

Work continues on improving our data architecture, and our goal is to have first-class data quality and BI driving our business by the end of the next calendar year.

The culture and capability workstream will see a new intranet site launched next month for colleagues to improve our internal comms. We're launching a new development program for high potential colleagues in October, and a new leadership develop program in December. Now that is one part of the journey which is over the life cycle of the transformation program.

And finally and very importantly, we've added an additional workstream focusing on developing and delivering our safer gambling plan. We've been developing out this plan of work during the past financial year, and we're now delivering initiatives within the governance of the transformation program.

So to the outlook. Transformation program within the Group continues to gain momentum with an increasing focus on revenue growth.

We expect the Stride acquisition to complete in October, subject to the necessary approvals.

And as Bill has said, current trading is encouraging and it's in line with our expectations, I think.

And we are optimistic about the outturn for 2019/'20.

At which point, we'll shut up and take any questions.

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Questions and Answers

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Paul Ruddy, Goodbody Stockbrokers, Research Division - Research Analyst [1]

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Paul Ruddy from Goodbody. Just 3 questions for me, if that's okay? The first one is just in relation to your concluding remarks there, John. Just the first 7 weeks of trading, obviously, Q4 was very strong across the board. I think all divisions showing very strong growth. So just the first 7 weeks in a more normalized weather environment maybe how is trading looking compared to Q4?

The second one then is just on CapEx, maybe. CapEx came down this year, and you've spoken again about a kind of a forensic examination of CapEx spent. So just maybe -- [would say], ongoing CapEx requirements for the business and whether this year's level is one to expect going forward?

And then the final question for me is just on machines. Just have you noticed anything tangible or could you point to anything tangible since the GBP 2 stake in reduction was introduced on FOBTs?

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John O'Reilly, The Rank Group Plc - CEO & Director [2]

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Okay. Let me take the first and the third one, and then I'll let Bill handle the CapEx question, if that's okay. I'll pass the baton for that one.

So first, 7 weeks of trading, I said, been encouraging. And we ended the year well, and that has continued into the current year. So we've made a good start. It's early days, a long way to go. So I do my kind of 7 x 7 are 49, we're 1/7 of the way through the year already. But -- so a long way to go. But a good start.

Machines, look -- clearly, when you look at the numbers being posted by the public bookmaking companies, then a lot of revenue has disappeared from betting shops that was previously being played on B2 games. And that's not a surprise. Roulette doesn't -- roulette, which has a house edge of 2.7%, if I round it, doesn't work at GBP 2 a spin of the wheel. So that's kind of inevitable. We are seeing some benefit inevitably. I mean -- look the vast amount of that money dissipates. There are 8,500 betting shops, and we've got 54 casinos. So the numbers are somewhat different, but we're seeing -- we're inevitably seeing some benefit. It's interesting because colleagues say "Well we're not seeing betting shop customers in our casino." And of course, the answer is, "Well you've always had betting shop customers in your casino. You just didn't realize that they're also playing in betting shops." Which is not a big surprise.

So I think for people who like to play roulette, we're probably seeing a bigger share out of their wallet than we were previously. But it's early days. We've seen a little uptick so far. We were well prepared for the change on April 1 in terms of modernizing -- investing in our electronic roulette estate. So we're in good shape, and yes, we've seen an uptick -- a little uptick so far, and it'd be nice to think it would continue.

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William Floydd, The Rank Group Plc - CFO & Executive Director [3]

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Paul. On CapEx, yes, so I've guided GBP 35 million to GBP 40 million for this year. We -- it will depend as we go forward past that on what cases we find, and what -- where we can get a quick return, I want stuff to pay back in 2 years. I think when we get Stride, there's an opportunity to take Stride on and stick at the GBP 35 million to GBP 40 million for the bigger business because we'll just have the one platform to invest in.

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Victoria Elaine Pease, Edison Investment Research Limited - Analyst [4]

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Victoria Pease from Edison. A couple of questions on Digital starting in the U.K. Just to get an idea of Grosvenor One and how much that's contributed, roughly, to growth in Grosvenor Digital.

And the second question on YoBingo!, the change in growth rates, H1, H2 are quite dramatic. I'm just wondering if you could give us an idea what's really happening in the market there? If there was a marketing push for the first half, but maybe not for the second? Or just an idea of why perhaps you're losing market share in the second half.

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John O'Reilly, The Rank Group Plc - CEO & Director [5]

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Okay, but I mean -- let me take the second one first, Victoria, for me. So the second, bizarrely, I don't think we have lost share because the -- in Spain, the -- I mean, we -- YoBingo! has 44% of the market. But there is a bit of chicken and egg here, I accept, but it's got 44% of the market. We've grown in the second half. And I think, the market's gone backwards during that period. So [gradual increase] market share, it would appear, albeit by a small amount.

But yes, but it is chicken and egg. If you have 44%, then your performance is going to impact upon the market inevitably. So I don't take any solace from that. I think a 44% is difficult to grow. Bingo market is relatively small. A big opportunity for us, we know, is the casino market. Yo has got a great brand. We were finding in the second half of the year, we weren't getting the same return -- in the early part of the second half, we weren't getting the same returns on TV advertising that we previously were. So we curtailed, cut back a lot of the activity in the second half just because we're not getting the returns. I'm kind of a firm believer that you spend -- you measure every cent that you spend in this -- in the Digital game. And if we're getting a return, you spend more. I always say to people, "There is no marketing budget. You spend up to the ceiling at which you stop getting returns." And that's the way I've always thought about it. So when we're not getting returns, we slow up on expenditure. And we did that in the second half in Yo. We've started spending money, slightly different advertising format, in the last few weeks. July is not a great month. August is great for cheap airtime in Spain. We've started to spend money, and we've been seeing good returns, it's early days, but we've been seeing good returns on that, so we're back on TV in Spain.

And so we expect the YoBingo! business to get back into double-digit growth, but more particularly, we think the growth going forward to be in the casino business which is a much stronger market, and a much bigger market than the bingo market. And we've got a good brand to grow into that market and we'll be launching in the next month.

And the Grosvenor One, it is about -- it's very important. It's about 20% of all our FTDs, our first-time depositors. But at 20%, it's an important 20% because the player values are significantly greater. Why? Because you get a bigger share of their wallet. So it's more important than -- 20% in FTDs terms, it's more important than that in revenue terms. So a long gestation period Grosvenor One, but we've delivered it at last. The tech is working really, really well. And we've got more work to do on the proposition, as I've said.

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Ivor Jones, Peel Hunt LLP, Research Division - Analyst [6]

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Ivor Jones from Peel Hunt. Just sticking with Grosvenor One, you said early days. Could you explain what is available in the casinos now in terms of Grosvenor One? Is all the hardware and the offer and the theme for the consumer to interact with, done right across the estate?

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John O'Reilly, The Rank Group Plc - CEO & Director [7]

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So today, yes, the wallet works. You can -- you enter one of our -- you come to one of our casinos, and one of our colleagues will encourage you to become a Grosvenor One member, if you're not already. And you have a Grosvenor One card, you can load it with cash, and you can use that card to play on electronic roulette. You can use that card to play on a gaming machine. You can use that card to withdraw money in the club. You can use the card to deposit money in the club. Yes, so it's multifunctional in that sense today. We've got...

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Ivor Jones, Peel Hunt LLP, Research Division - Analyst [8]

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And all of that functionality is available on all the machines you want it to be available on, in all the casinos you want...

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John O'Reilly, The Rank Group Plc - CEO & Director [9]

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Yes, yes, Yes, no. Yes, it's -- in terms of the technology, it's fully functional. As I say, there is more work. I'd like the consumer -- today our customers, we help our customers register. I'd like our customers just to be able to register. If you're a Grosvenor customer, you're a Grosvenor customer. If I go online and register, you become a Grosvenor One customer, is where the functionality will move to in time.

So there is always more tech work to do. You're always enhancing and improving it. That's the nature of technology, I mean, I just always think that you've got to deliver the minimum viable product and then expand, expand, expand and keep delivering more functionality in line with what you learn from how your customers are using it. So that's what we're doing.

But I don't think we've quite landed the proposition well enough yet. It's good, and I'm pleased with the response from customers, but we've got more work to do on the proposition. And we need to -- the link between our Grosvenor One proposition and our rewards program needs to be stronger. So there needs to be much more focus on that going forwards, and that's something what we're working on in this current month, actually. That's -- we'll see developments on that before the end of the month.

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Ivor Jones, Peel Hunt LLP, Research Division - Analyst [10]

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And you talked about closing -- you mentioned you closed Luda. What -- are there other innovations that could come in relation to bingo, other locations, arcades, other things you're doing with the Mecca clubs?

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John O'Reilly, The Rank Group Plc - CEO & Director [11]

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So, yes. There are lots of things within the Mecca clubs. I think probably the biggest opportunity in the bingo business is that there is a very strong overlap, as I mentioned, between the online world and the venues bingo world. We've not maximized that opportunity. Very much with our focus currently. And I think, it's one of the ways of making bingo more relevant to -- venues bingo more relevant to consumers. We've done a lot of work around more entertaining, noisier bingo formats. If you haven't been to Players at Camden, I recommend you go, it's a good night out. And if you haven't been to a Bonkers event, you should go to a Bonkers event. It is bonkers. Dear me. Yes. And our colleagues love it, too. So that's really good and so that helps modernize the concept.

But there's no current link between the online and off-line world. So we're focusing on projects like delivering -- do you want liquidity? It's going to take us time to get there, but that's clearly an important concept so you can play online or you can play in a club for the same prize, and that's important.

So yes, lots of development in the Mecca business.

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Ivor Jones, Peel Hunt LLP, Research Division - Analyst [12]

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And on YoCasino!, how different is it from YoBingo!, I should have gone to the site before asking this question, but if I get a look at YoBingo! does it have slots games and casino games to play for consumers today?

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John O'Reilly, The Rank Group Plc - CEO & Director [13]

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Yes, a relatively small range. I mean Yo is a very -- the YoBingo! business we bought is a very simple business model. It's bingo, and it's got a small selection of slot games. What we're doing is we're adding a casino to it, which is a broader range of casino gaming, from roulette and table gaming, other forms of table gaming through to gaming machines, our online gaming. And -- so that's the concept. You'll be able to access that via YoBingo! or you can access YoBingo! via YoCasino!. So multiple points of entry for you the consumer. And it will significantly increase the range, therefore, of gaming content on the -- for YoBingo! players. So we start with a customer base in that sense because the YoBingo! player will have access to YoCasino!, but more importantly, it helps us drive a new player base, which is not a bingo player base but a player base, focused on what is a much larger market of casino players in Spain.

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Ivor Jones, Peel Hunt LLP, Research Division - Analyst [14]

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Last one. Is Rank ready for whatever it is that the Gambling Commission wants the industry to do in relation to affordability?

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John O'Reilly, The Rank Group Plc - CEO & Director [15]

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So I think we are as -- yes, I think we are. So in Digital -- In the Digital business, I'd like to think we are in a pretty good place, in that we've been working with our customers on affordability for some considerable time. We continue to hone and improve our models in that regard. So affordability has been at our mindset. It's an area where, I'd like to think, we're ahead of the curve. So we've been working on that for some time.

It is much more difficult in the venues business, much more difficult. So in Grosvenor, in particular, this is more of a challenge, but we recognize the challenge. And we know that affordability is the direction of travel. So we're as well placed as we can be. We know we clearly have more work to do. And some of it's technology -- the great thing in the Digital businesses is you capture every transaction, you don't capture every transaction in a venue. And therefore, it is more difficult, but that's very much within our kind of key focus area.

Are there any more questions? Great. Well thank you very much for coming. Thank you for joining, for those who joined us on the web, and we'll see you at the interims in January. Thank you very much indeed.