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UK – Organic growth not enough as Rank looks for M&A opportunities in digital

By - 24 August 2016

Having had a joint bid for William Hill kicked into touch, British bingo and casino operator Rank Group has said it is still open to expanding its online division through merger and acquisitions.

Rank had partnered with 888 Holdings to bid for William Hill but has now given up on its takeover having failed to engage meaningfully with William Hill’s board.

The statement of intent came as Rank posted full year operating profit up 16 per cent with all brands showing growth.

Group revenue was up four per cent with like-for-like revenue for Grosvenor Casinos and Mecca up eight per cent and two per cent respectively.

Despite showing strong digital growth with revenue up 21 per cent and operating profit up 14 per cent, CEO Henry Birch said the group wanted a greater ‘focus on the digital arena’ and said Rank would continue to look for mergers and acquisitions to strengthen its digital offering.

Rank has a planned migration to the new Bede digital platform underway with the go-live planned for the third quarter of 2016.
Mr. Birch added: “Our 16 per cent profit growth has translated into 18 per cent adjusted EPS growth and a 24 per cent increase in our annual dividend which is reflected in a strong balance sheet and lower debt. Alongside our strong operating performance, we have made good progress on our strategic objectives that we outlined 12 months ago, and we have a clear strategy for delivering sustainable profitable growth across all our brands.

“We are particularly pleased that the strong digital growth we reported at our interims continues and we remain on track to implement a new digital platform in early 2016,” he added.

“Our market-leading Grosvenor Casinos business continues to deliver consistent growth with like-for-like revenue up eight per cent and operating profit up 17 per cent. Mecca has had a significantly improved year with like-for-like revenues up two per cent and operating profit up 16 per cent, driven by good digital growth, stable like-for-like revenues in our venues and lower operating costs benefiting from a reduction in bingo duty. And after several years of tough trading conditions, Enracha, our Spanish bingo business, has reported euro profits up 240 per cent. We firmly believe that alongside growth in digital gambling, there will continue to be sustained demand for venue based gambling in bingo clubs and casinos which offer an experience that cannot be digitised. Moreover, we believe that consumer trends will increasingly favour companies that can offer services across digital and retail channels and successfully offer a joined-up experience to our customers.

“Trading in the short seven-week period to 16 August 2015 has continued in line with the trends seen in 2014/15 and is in line with management’s expectations. Following our strong performance in the year, the board is pleased to recommend a significant increase to the dividend, delivering strong returns to shareholders and reflecting our continued confidence for the future.”

Analysts believe the company is well positioned for growth.

Peel Hunt analyst Ivor Jones said: “Rank management has made it clear that Rank is open to participating in the consolidation of the sector. Today’s results show that it will be ready when the right offer comes along,” in a client note.

Jane Anscombe, analyst at Edison Investment Research added: “A weak Q416 left final results a tad below Edison’s forecasts despite good results in Mecca venues and Grosvenor digital. However, cash generation was strong and the dividend was lifted by 16 per cent. The organic growth strategy (focusing on multi-channel development) remains intact and while the failure to progress what would have been a transformational acquisition of William Hill (with 888) was a disappointment, it demonstrates the scale of management’s ambitions. We suspect that future accretive opportunities will arise within the consolidating online gambling space.”

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