The Rank Group Plc (RNKA.F) Earnings Call Transcript & Summary

Alex, many thanks. Good morning, everyone. I'm John O'Reilly, I'm The Rank Group's CEO. I'd like to welcome you to The Rank Group results presentation for the 6 months to the end of December -- 31st December 2021. Thank you for joining us this morning. Hopefully, this is the last time we deliver our results presentation remotely. I mean if that's the case, I'm confident at the end of the pandemic will reflect in the results or the strength of our results going forward. In terms of the order of play this morning, I'm going to provide you with a summary of the group's performance over the first half of '21, '22. And Simon Hay, our interim CFO, who I'm delighted to introduce to those of you, who have yet to meet Simon, we'll run through the half year numbers in more detail and provide an update on our much stronger liquidity position. I'll then provide an update on the key initiatives in our transformation program for the second half of the year. I'll also touch on the government's gambling review and on our ESG developments and we'll take any questions that you have. So when we published our full year results for 2021 in August, it was in the context of our venues businesses having been open since -- back open since May with recovery underway in the shape of customer visits and revenues gradually improving. As we all know, that recovery started a little through the autumn months -- autumn and winter months with the increase in COVID case numbers in Q2 -- our Q2, eventually resulting in Plan B customer restrictions, the retightening of travel restrictions, and much greater levels of caution amongst consumers as Christmas approached. And hopefully, we're now through this and recovery is now very much back underway. The group returned to profitability in the first half with an underlying like-for-like profit of GBP 24.1 million. We made good progress in our venues businesses from the reopening in May through to October. The rising case numbers saw recovery in visitors and revenue stutter in November. And other than in London, where we continue to benefit from rising inbound tourism with restrictions having been largely removed in October. The return of restrictions on consumers in December in November in Spain unsurprisingly, saw revenues decline. The digital business grew revenues 7% in the half, 9% in Q2, and we've now successfully migrated the Mecca online business onto the RIDE platform, our in-house technology. And that's a very, very important milestone for the Rank digital business. Our balance sheet is in a much stronger position. We ended the half with net cash of GBP 55.1 million, and cash and bank facilities of GBP 224.8 million. And this much improved financial position, together with the initiatives we've been delivering through our rebooted transformation 2.0 program, ensures that we're very well positioned to return to the revenue and profits growth trajectory we were on at this time in 2020 before the pandemic struck. And the removal of most COVID restrictions across the U.K. from today provides a major fillip to our business for the second half of the year. And that's U.K. overnight has come in news that all the restrictions in Catalonia have also been removed from midnight. So more positive news today. I'm getting a little more into the detail. I'll start with Grosvenor Casinos, which have been trading free or trading well when free of restrictions. With venues open and consumer confidence returning, Grosvenor made an underlying like-for-like operating profit of GBP 34.9 million on revenues of GBP 161.6 million. A strong recovery despite the rising COVID cases and the return of restrictions in December, which dampened demand towards the end of the half. Now compared with pre-COVID 2019, our revenues were down 18%. Outside of London, our revenues were down just 9%, running at around 2019 levels in Q1, but softening in November and December. In London, revenues were down 33% on 2019, reflecting travel restrictions and to a lesser extent, consumers working from home. When travel restrictions were largely removed in October, visitors quickly returned to London. In November, revenue across our 9 London venues were down just 3% on 2019. And just by way of reminder, we have 52 Grosvenor venues across the U.K., of which 9 are in London. But those 9 account for around 42% of our revenue in a typical trading year. So a strongly performing London estate has a very significant impact on the results of the Grosvenor business. And the way London bounced back in November on the removal of inbound travel restrictions into the U.K. suggests a strong relay of demand. As soon as our liquidity position improved, we recommenced investing in a key growth transformation initiatives. Investments in product and system improvements, including the first phase of a new table management system, and that's particularly helped deliver very strong table margins in the half. We've made good progress in developing our omnichannel service with a new onboarding journey trial in the half, and that is now rolling out across the estate. And we've also seen good traction with the launch of our first venue microsites, Thevic.com, which provides customers of the VIC on Edgware Road with all the latest info they need on their favorite casino alongside the ability to play online on all of their favorite VIC games. Further developments to follow for Thevic.com in the second half. We rolled out ID scanning across the estate for the reopening of our venues in May, and we've since introduced a new risk model within each venue to help our colleagues identify customers, who are potentially at risk of problem gambling. And that's another important step forward in terms of developing our data systems to provide increased protection for our customers. And we've successfully delivered 2 property investments in the first half, a refurbishment of Grosvenor Huddersfield and the introduction of an additional casino license and with it 20 additional gaming machines into the Grosvenor casino in Nottingham, both performing well. In the round, good progress across the Grosvenor state, and we have lots of opportunities in the pipeline for investment in products, systems, people and property to drive growth as we now emerge from the pandemic. To the Mecca business, and this is tougher. Mecca is more heavily impacted by customer caution about COVID. Our older cohort was slower to return following reopening and after making reasonable progress through to October, our visit numbers fell in November and December, as cases grew across the U.K. And consequently, the Mecca business made an underlying like-for-like loss of GBP 1.3 million in the half on revenue down 24% on pre-COVID 2019 levels. Visits were down 32%, with spend per visit up 12%. Now clearly, Mecca is a challenge with the pandemic having impacted this to volumes for now effectively 2 years. But we're investing in value for our customers as we now emerge from the pandemic. We're rolling out a huge value in the main stage bingo game with lower prices and guaranteed price boards to encourage customers back to bingo and to drive visit numbers. Our objective is to grow venue-based bingo to ensure sustainable profitability from what are very important social amenities for our local communities. In Enracha, our Spanish bingo and electronic gaming business delivered underlying like-for-like profit of GBP 2.7 million in the half on revenue down 22% on 2019. Our visitor volumes were down 32%, with capacity and opening of restrictions hitting visitor volumes throughout the half. Spend per visit was up 16% as a result of the investments that we've made in electronic gaming across the International venues actually, which result in machine revenue in line with that of 2019 levels, despite that big decline in visits during the period. We've been making further investments in gaming machines across the estate, and we should see this business recover quickly when restrictions are removed. This has been a very important half year for the digital business. We've seen very good progress being made. First, revenues are back in growth at plus 7%, the strongest growth coming in Grosvenor of plus 18%, which benefited from the omnichannel flow of customers with our venues back open and from the Stride brands operating on the RIDE proprietary platform, which grew 34% in the half. Mecca grew 3%, and the weakest performance came from our nonproprietary brands operating on a variety of third-party platforms, which saw revenues decline by 16%, and that reflects, I think, a catching up in affordability restrictions by other platform operators. U.K. digital new customer volumes grew 16%, with a 57% growth in Grosvenor for improved omnichannel journeys and the first above-the-line investment in the Grosvenor brand for many years. RIDE brands saw new customer volumes up 88%, as we begin to scale marketing investment. Mecca was very successfully migrated to the RIDE platform this month. We're delighted to get this over the line. It's a huge milestone in terms of our digital ambitions. The migration was the culmination of 2 years of development by our excellent in-house team, and we're now well set to drive product and service improvements for our Mecca customers over the coming months. The next up is the migration of Grosvenor, which we expect to complete later in the summer. This will fully release our in-house development capability to drive a pipeline of identified growth initiatives both in the U.K. and internationally, plus, of course, releasing further synergies. We've now delivered GBP 9.5 million of annualized synergy costs for the Stride acquisition, and we expect total annualized synergies of GBP 15 million once we've completed the migration of Grosvenor. In addition to the successful migration of Mecca, we've also delivered a number of further enhancements to player protections in the first half. Central to these have been improvements to affordability journeys for customers, both to ensure customers are playing within their means, but also to reduce some of the friction for the vast majority of customers, who are not at risk of problem gambling. We've also further improved our real-time monitoring system, which we call Hawkeye to better identify and interact with particularly new customers playing at high rates or high velocity. The Yo online brands, YoBingo and YoCasino, performed well in the half. Revenues grew by 9%, with -- but new first-time deposits were down by 54%, following the marketing restrictions imposed in May last year, which bar any incentives being offered to new customers online in Spain. During the half, in was successfully migrated on to the proprietary Yo platform. Market growth has slowed in Spain as a result of the changes in regulations, but we've got a strong brand in Spain and plenty of opportunities to drive further growth. Simon?

Thank you, John, and good morning, everyone. I will start by taking you through a summary of the interim numbers for the 6 months to 31 December and then provide you with some more insight on our performance by business unit and liquidity position. So John has taken you through the underlying headlines on a like-for-like basis, what I'm sharing with you on this slide here is the headlines on the statutory basis. The business has returned to profitability in the period with net gaming revenue up by 88% on the comparable period to GBP 333.7 million. This performance has delivered an underlying profit of GBP 23.7 million and the reconciliation to the like-for-like profit of GBP 24.1 million that John referenced is in the appendices. Through the period, we continue to take decisive action to protect and preserve cash on the balance sheet with the VAT repayment of GBP 83.1 million, providing further cash headroom. We have ended the period with GBP 224.8 million in cash and available facilities, and significantly, the group is in a net cash position at GBP 55.1 million at the end of the period. Underlying earnings per share was 3p before separately disclosed items. Let me now turn to the individual business units. In Grosvenor and Mecca venues business in the U.K., our major venues in Spain have remained open for the entire period in review. However, in Spain, we did see restrictions around venue capacity and operating hours, both at the start and towards the end of the period, as the Spanish government responded to ongoing concerns around COVID-19. Grosvenor venues has reported GBP 161.6 million in like-for-like NGR in the period, 80% below the pre-pandemic comparable period, delivering a like-for-like operating profit of GBP 34.9 million. Mecca venues have been impacted more probably the pandemic. Overall customer visits are down by 32% on the same period in 2019. With this backdrop, Mecca's delivered like-for-like NGR of GBP 65.7 million and the first half operating loss of GBP 1.3 million. And as I mentioned, despite the impact of capacity and operating our restrictions in Spain at various stages, our Mecca venues have performed in line with expectations delivering GBP 14.1 million in like-for-like NGR and an operating profit of GBP 2.7 million. Energy costs in the period of GBP 9.8 million are up 80% on the comparable period in 2019. Moving now on to digital. Digital business grew revenues by 7% in the half, with like-for-like NGR of GBP 92.1 million in the period, with progressive growth quarter-on-quarter. Grosvenor has delivered an 18% growth in NGR to GBP 25.8 million in the period. Mecca was more impacted by the preparation of the migration onto the RIDE proprietary platform, which successfully completed earlier this month. Nonetheless, Mecca delivered a 3% growth in like-for-like NGR to GBP 34.9 million. In its first full comparable like-for-like period, Stride brand performance is a contrast between its 2 parts. Performance on the proprietary brands on the RIDE platform has increased by 34% to an NGR level in the period. However, the nonproprietary brands operating on third-party platforms declined by 16%, reflecting the catch-up effect of affordability restrictions across those platforms. Stride's like-for-like revenue was GBP 21 million for the period. The Yo business continued to perform well with comparative growth period growth of 9% to like-for-like NGR of GBP 10 million, despite the challenges from the instruction of marketing restrictions introduced in Spain. Like-for-like operating profit for the digital business unit was GBP 3.7 million in the period. Moving on now to the income statement. The underlying operating profit was GBP 23.7 million. The net interest charge was GBP 6.5 million, and I would anticipate a similar charge in the second half. Separately disclosed items totaled an income of GBP 84.9 million in the period, and I will take you through the detail of those on the next slide. The underlying effective tax rate was 19.2% due to the mix of profits across the different jurisdictions, the increase in the tax rate in Gibraltar from 10% to 12.5% and the nondeductibility of amortization costs. Our cash tax paid is expected to be lower with the ability to utilize prior year losses against the current year profits. The effective tax rate for the underlying profit for the year ahead is expected to be 18% to 20%. The key item in the separately disclosed items is the refund of GBP 83.1 million on the VAT paid on the gaming machines in the period from April 2006 to January 2013. This is shown separately as the refund itself, net of costs and the interest thereon of GBP 5.6 million. In addition, as a result of the improved performance since reopening across a number of the growth venues and the effect of the transformation actions taken in 2020, it has been necessary to reverse GBP 10.8 million of previously paid assets across 6 of the Grosvenor venues. Additional profit of GBP 3.1 million has also been recognized on the disposal of the Belgium business, which we completed in April 2021. On to the cash flow. The cash generated from operations in the period was GBP 139.6 million, including GBP 81.7 million from the separately disclosed items. There was GBP 13.4 million of CapEx as we recommenced investment in our venues estate, predominantly with 2 refurbishments in Grosvenor and investments in new gaming products and improved customer experience. We also continue to invest in digital largely in the tech integration. Interest and tax paid was GBP 10.2 million, and we end the period with no rental duty deferrals and all supplier payment management is back to business as usual. We will meet the loan repayment amortization of GBP 29.6 million in May this year. At 31 December, as I mentioned earlier, we have a net cash position of GBP 55.1 million before leases and with lease liabilities reduced by GBP 26.8 million to GBP 196.3 million, we have a closing net debt position of GBP 141.2 million, and cash and available facilities closed the period slightly above expectations of GBP 224.8 million. And finally, we expect to meet our waiver liquidity test of GBP 50 million when it is next tested at March. And then after that, we revert to our banking financial covenants, which is a net debt-to-EBITDA ratio of less than 3x and EBITDA to net interest payable of more than 3x, which will be again applying for the 30 June '22 test date. As we remain in a banking covenant waiver period, we are unable to pay a dividend. However, the Board will review the dividend as we return to normal banking covenants in the second half of this financial year. We anticipate GBP 50 million in CapEx investment for the full year, and as usual, the appendices set out our usual data sheets and provide you some more insight. With that, thank you, and I'll hand it back to John.

Many thanks, Simon. The group's transformation framework helps to ensure our key initiatives are properly prioritized, resourced and are tightly monitored as they progress through to delivery and with a much improved financial position of the group, which Simon has outlined. We've been able to accelerate investment in the transformation program through the first half and particularly into the second half. We've delivered a number of projects in the first half and with the additional inflows of cash from the VAT repayment and from the return to cash generative trading. We have a very strong program of transformation initiatives in this second half of the year. In this chart, I need to show you some of the key second half deliverables across each of our 7 transformation work streams. In the Grosvenor venues work stream, we're accelerating our investments across the estate. Our refurbishment works commencing 3 venues: Bristol, Warsaw and St Giles, which is otherwise known as Tottenham Court Road, this month. Then in February, major development works commenced in the Grosvenor casinos in Merchant City, in Glasgow and in Blackpool. And we've got a further 4 projects expected to begin work in April. And all of those projects improve the customer journey and fund excitement to the customer experience and increase the range of facilities for our customers to enjoy. And the estate has been historically underinvested in mode, and we therefore have plenty of opportunities to make very significant improvements. We're gradually rolling out a new table management system to optimize table openings and minimum bet sizes, and we're launching a new progressive game in electronic roulette terminals called Lucky Lady's Charm. Within Mecca, the key development is the investment in main-stage bingo value, low prices for the main stage bingo game and bigger guaranteed prices to encourage consumers back to bingo as fears about the pandemic ease. We're opening a new style venue in -- new styled Mecca venue in Luton. Mecca Luton has a contemporary design to appeal to a broader customer base and our research tells us that 30% of women would consider visiting a bingo venue if it were appropriate for them. And this new design aims to attract a broader cohort of younger customers, whilst not alienating our core customer base. The concept has researched very well and we should inevitably learn a huge amount from the reaction of our customers when we open later this quarter. And elsewhere across the Mecca estate, we're trialing a program of smaller investments to improve the external appearance of our venues, supporting the strong price and price board offer. In Enracha, we're completing the rollout of a new gaming machine management system, which, amongst other things, provide us with much stronger play data at both a game and customer level. Plus 2 further small property investments to improve electronic gaming and sports betting facilities. In the omnichannel work stream, we're delivering further improvements to the omnichannel journey for existing Grosvenor venues customers, so that they are more readily recognized and rewarded when they go online. We'll be launching further many specific microsites for Mecca Luton and for the Rialto Casino in Leicester Square. And across the Mecca estate, we're now stepping up the focus on our first joint liquidity game, Mecca Fortune, featuring it as a major part of the schedule, both online and in venues across Friday and Saturday and Sunday evenings. Our joint liquidity across channels ensure some really big prizes that are up for grams with Mecca Fortune, both online and in our venues. Within digital, the key transformation initiative is now completing the development effort for the migration of Grosvenor onto the RIDE technology platform. Our road map to development now kicks off to enhance the Mecca Bingo service now that it's on the RIDE platform. And in Spain, we'll be launching sports betting on both in Enracha and Yo brands and subject to final regulatory approvals, will be launching YoBingo in Portugal. Within the safer gambling work stream, we have the next phase of our digital customer protection development work about to commence, which will merge a number of different data models into eventually a single player protection framework to both further help identify our risk play and to streamline the customer interaction process, so that they are more timely and relevant and where appropriate, less intrusive. In Grosvenor Casinos, we have further enhancements to make to the risk model we introduced in the first half. And across all of Rank's U.K.-facing businesses, we're about to launch a comprehensive training program to further strengthen the safer gambling culture within the business. On the organizational capability work stream, we have further worked within the finance area, automating standardizing more of our processes across the group. We've just about brought all of our in-house development or booked in-house all of our development with a number of new signings into the IT team, and we're rolling out more components of the employee value proposition, including providing clearer career plans and developing further opportunities for our venues colleagues. So a busy second half. The U.K. government's review of gambling legislation continues and a white paper is due to be published in the next few months. And the timing of that is not very clear at the moment, but government have indicated it will be in the coming months. The review focuses heavily on digital or remote gambling. And I expect more prescriptive measures to emerge, which will help draw a new line in the sand for online operators. For land-based gaming, this is a once-in- opportunity to ensure that legislation and regulation is appropriate for today's consumer and is equitable relative to online regulation. And by way of a reminder, the 2005 Gambling Act created an experiment of 16 new casino licenses in the U.K., of which 8 were eventually opened. And those 8 casinos have operated under very different and more favorable regulations than other U.K. casinos, which continue to operate under the old regulations of the 1968 Gaming Act. And the key regulatory changes sought by casinos are our line here. Harmonization of the '68 Act casinos with those of the 2005 Act, enabling up to 80 gaming machines from the current restriction of 20, and the ability to offer sports betting. The ability to provide table games on electronic terminals based upon a random number generated as occurs online rather than necessarily on a live gaming event, which would enable games like Blackjack and other -- other table games to be offered at lower stakes that could be delivered on live tables. And the ability to offer and enable customers to access cashless gaming transactions in the way we do as consumers in any other retail transaction. And with the exception of sports betting, which would likely require primary legislation, those other proposals could be delivered through secondary legislation. For the bingo sector, the key changes we're proposing are the removal of the current requirement that no more than 20% of gaming machines are category B3, which are by far the most popular machines with our customers. And we're also asking for additional side games for customers to play alongside the main stage bingo game, giving our players more opportunities to win. And we're also asking for the provision of cashless gaming in Bingo. Our expectation is for a tightening of regulations governing online play in the U.K. alongside modest, but very important, regulatory changes for the land based casino and bingo venues and for our customers. Today, we're launching the group's first responsible business report, and that provides an overview of the initial work we've undertaken to establish the appropriate approach to the development of our ESG strategy. Our work in this regard focuses on 4 areas: customer experience, colleague experience, environmental management, and community engagement. And the next stage of that work will be to further develop our core initiatives within each of those 4 key areas and also to define the key performance indicators, which will enable us to report on the social and environmental impact alongside our financial reporting calendar. There's a link to the report from this morning's results, RNS, and you can also find it in full on the Rank Group corporate website. To the outlook, and you can see here the statement we published this morning. The first 3 weeks of January have been soft, seen soft trading across our venues businesses. The digital business trading in line with expectations. And meccabingo.com has already returned to pre-migration revenue levels. We built up strong momentum back in 2019, '20 before the pandemic struck and with today's removal of just about all restrictions in England, and the rest of the U.K. removing restrictions in the coming days. We are well positioned, I think, to get back to that strong growth. We expect Grosvenor to now recover quickly, particularly when inbound travel to London picks up. For Mecca, we expect a slower build as consumer confidence gradually recovers. When we provided a trading update in October, we provided guidance for underlying EBIT for the full year between GBP 50 million and GBP 75 million. And despite the challenging trading conditions we then experienced through November, December and into January, we now expect, subject to no further material restrictions, EBIT for the year ending 30th of June to be within the range of GBP 55 million to GBP 65 million. And now Simon and I will take any questions. Alex, if that's okay?

[Operator Instructions] Our first question today comes from Gav Kelleher Keller at Goodbody, Gav, if you can take yourself off mute, please go ahead.

Just a couple for me, please. Firstly, on digital, you have increased marketing investment in the H1 period. How should we think about marketing in the digital business, marketing spend or marketing investment going forward? Was there a bit of catch-up in H1 in terms of it as a percentage of net revenue, and then we'll see a benefit from that coming through? That's my first question. And then my second question, on the more extensive or increased investment in the Grosvenor estate and Mecca. How quickly will you see the return on that investment as we move forward?

Let me take them in the order. First of all, marketing investment, yes. So marketing investment in the half was up 37% on the same half last year. So we invested heavily in the half, and we brought some -- Grosvenor back on to TV for the first time in many, many years. And had a strong campaign, which continues actually for Mecca on TV. And across the piece, 37% increase. Also, we've been scaling marketing in the RIDE brands, which has also helped drive strong growth in new customer acquisitions. So 54% growth in new customer acquisition in Grosvenor in the half and an 88% growth, I think, in the RIDE brand. So a big step-up in new customer acquisition volumes. Second half, yes, I think there was a bit of catch up. Second half, we will ease back, not hugely, but we'll lease back a bit in the second half. And we are -- we've been driving good quality acquisition at -- customer acquisition at relatively low CPAs. But nonetheless, there will be a bit of easing back on the throttle in the second half of the year. I mean in terms of the estate, I mean it does vary by CapEx proposal by venue actually, but we're seeing returns of 18 months through to 2 and a bit years, is kind of where the payoffs are. Some much quicker, and we've done -- we've done -- pre-pandemic we've had good examples of properties which have paid off the investment in less than 12 months. But we're seeing strong returns, and we expect that to continue with this range of investments in the second half and probably inevitably the more -- the greater the amount spent per property, then the longer it takes to return is a general rule of thumb. On the other hand, properties like Merchant City in Glasgow, which is such a strong property. I mean it's -- if you went to Glasgow and try to find a location for a casino, it would be the one you would pick. And it hasn't had money spent on it for a number of years, and it reflects and we are going to be doing a major refurbishment of that property. So that will take a little longer to return, but very excited about the prospects in Glasgow.

Our next question comes from Richard Stuber at Numis. If you could take yourself off mute, Richard, please go ahead.

Just a couple of questions from me, please. First of all, on the timing of the migration of growth, it looks like it's marginally slipped. I was wondering, is that related to the migration of Mecca online? I know there was a piece of slightly negative press articles around the migration. So were there any sort of lessons you've learned from that, which you'll now be putting in place for the Grosvenor migration? And the second question is, could you just give any more sort of detail or numbers on multichannel customers? Clearly, they've picked up nicely in Grosvenor. I think in '21, you lost GBP 20 million revenue from those customers. Do you expect that to be sort of recouped in its entirety over the next 12 months or so?

So thank you, Richard. On the migration of Mecca, well, I think you probably read the comments that we made at the bottom of the article, it's a lot way down the article that our comments appeared. We made the point that it was just untrue. We -- look, I've done lots of migrations in my career, lots of them, and they're always painful. They were never so painful, because you're taking a site down. So you start with a period -- you start from the premise customers I'm not going to access to their account for a number or a period of time. This -- it took us longer than we had hoped to bring the site back up. And having brought the site back up, there's a bit of background noise, apologies for that. Having brought the site back up, we had some instability, and we took it down and brought it back up the following day. So it was down for the best part of 8, 9, 10 hours longer than we would have hoped, but we quickly bought it back up. And as I think I've already said, performance is now at least in line with and arguably better than we were performing on the Mecca site before we did the migration. So I'm delighted with the outcome. And the team have done an amazing job, worked incredibly hard to deliver what was a very successful migration. And as I said, we've now got a faster site and the customer numbers, however, whichever metric you look at over the last kind of week, particularly actually in the early into the data, which I saw this morning for the first 2 days of this week is very strong for Mecca. So we think the team has done an outstanding job actually. In terms of the migration of Grosvenor, we had hoped to complete by the end of Q2. I'm now saying summer, not because of learning lessons. We hoped to migrate Mecca before Christmas and in the end, I thought we should delay until the early part of January. And we did that. So we got back into the new year, and we did the migration of Mecca. I think we've got quite a bit of work to do to get Grosvenor migrated. We've got certain integrations we've still got to deliver on. So I think for safety's sake, we're saying it's the summer, hopefully not later than that, but we'll see. I mean, this is development. So you never quite know until you get there, until you've done testing and more testing and more testing, but that's where we expect it to be. In terms of the multichannel question. Yes, look, it's going to take us some time to get back to the heady heights that we were at. The GBP 20 million, I think, is a number that is a combination of Mecca and Grosvenor. And it splits broadly GBP 12 million for Grosvenor and GBP 9 million for Mecca. So there you are. The best part of GBP 21 million going back in time. We're below those levels still, but we've had 3 consecutive quarters of growth. So across both Grosvenor and Mecca, both businesses growing quarter-on-quarter, digital revenues from customers that are also revenue customers. So we're heading in the right -- we're not back to where we were, but we're certainly heading in the right direction.

Our next question comes from Ivor Jones at Peel Hunt. Ivor, if you could take yourself off mute, please go ahead.

A couple of things. In the London performance in the half, I know you don't want to get into massive granular detail. But is there a split between the high end and the other casinos. Can we see the absence of international travel, particularly in with the much more back to normal?

Ivor, yes, simple answer. You're absolutely right. Look, a lot of -- at the very high end, we don't have a high-end Mayfair casino, but in the half -- gambling commission categorization of high-end Casino is the 7 or 8 in and around Mayfair. So we have one of those casinos. But of course, a lot of those have closed. They still haven't opened because of the absence of international tourists into London. So -- and we've got -- in our 2 higher-end casinos, which would be the Park tower in Knights Bridge and the Barracuda on Baker Street, which are our kind of highest end than a high-end casinos. They're not Mayfair, but they're higher-end casinos. They've been the 2 casinos, which have inevitably been impacted more significantly by the absence of foreign travelers into -- in particular, Middle East travelers into London. Other London venues have performed better. So at the other end of that spectrum would be a venue like Rialto in Leicester Square, which just by virtue of being in the location it's in, sees a lot of people through the door. It doesn't -- it doesn't typically get those high-end players, but sees a lot of people through the door. So yes, you're absolutely right in your assumption.

And on Mecca, revenues up half-on-half about GBP 27 million and profits up about GBP 4 million. And I've looked at the helpful detail of most of you given, but I still can't -- it seems to be spread across multiple lines. I can't quite work out why the operating leverage hasn't come through more strongly period-over-period? What am I missing?

Well, Mecca hit harder by energy costs. So there's no doubt. So the increase in energy cost has hit Mecca harder. So our breakeven point in the Mecca business coming into the year was about GBP 2.4 million. And I think, Simon, you now say it's more like GBP 2.7 million on...

more than GBP 2.7 million.

Now, yes, on a weekly basis, and that's a function of an increase in people costs inevitably. So some inevitable salary inflation. But more -- just as much actually based upon energy costs. I think across the half, our energy costs are up GBP 4 million against our expectation going back to when these -- when the targets for the year were set. An equivalent amount up on 2019, a little bit more actually up on 2019, and we expect it to be up 9.5% across the full year. And that for that 9.5% is split 60% Mecca, 40% Grosvenor. So it has a bigger impact actually on the Mecca business. So they're probably the 2 things that weigh a bit more heavily on Mecca. I mean in simple terms, Mecca just doesn't have the headroom that the Grosvenor business does. So on a decline in revenue, it makes more properties more marginal very quickly. We now want to flip that around as we come out. We've got to flip that around. And my judgment call here and the team's view is that this is all about giving value back to customers to drive visits as we now emerge from the difficult trading that Mecca has inevitably experienced over the last 2 years.

And I wanted to pick up on what you said about value, because you talked about the main stage game. What does that imply for internal games that's typically not been good value wise? Are you withdrawing them or reducing that visibility or frequency?

We are -- what we're doing actually, we are reducing their frequency and to some extent, the visibility. And in Luton, we're removing them completely. So typically, the bingo venue in the U.K. has what we call a rig and people are playing an interval game with a pound coin into a coin mark at their table. And we're removing that completely in Luton. So I think the consumer comes to -- they come to play bingo, and that's the main stage game with a bingo caller. So we are focusing on value. We're also focusing on entertainment. So we've put all of our callers through an MBA, a Mecca Bingo Academy. And we are putting entertainment back into main stage bingo. And delivering it in a much more fun and entertaining way. And it is work in progress, but the team have been making amazing inroads actually and added now to a new prize and prize board, which will give much better value to the consumer. We think that's the -- I mean it's kind of very simple, not very complicated. This is -- it really is not complicated at all. So customers come to bingo, come to makes play bingo and more customers will come, therefore, if we give them better value on the reason why they come, which is to play bingo. So it's a pretty simple premise as we now emerge from the challenges in the last couple of years.

Thank you. But there are a couple of more things I wanted to ask, shall I go away and see if Alex let me back it again.

No, you crack on Ivor.

I would keep going.

Thanks, Alex. You've obviously reaffirmed your CapEx guidance for the year. You've listed lots of projects with a relatively rapid return that you can invest in. What's the range of possibilities for CapEx for next year? What will drive that range? Is this peak year?

I think this is close to peak year. Our challenge here actually is bandwidth, management bandwidth or ability -- this is not a cookie cutter and upwards in lots of businesses where you can cookie cut a refurbishment. You can hone it -- engineer it, hone it, roll it out at pace across the state. And our business is not like that. It needs -- every venue is different. Every venue has a different customer base. Every venue needs to be very carefully planned and very carefully implemented. So our -- I think we're sort of at our peak bandwidth now in the second half of the year. I'd expect our CapEx to maybe increase a little next year, but not much beyond the GBP 50 million mark. Probably GBP 50 million to GBP 60 million would be the sort of number I'd be thinking about at this stage.

Just on the digital side, you talked about 37% increase in marketing. That's not how the accounts present the change in the marketing number in the digital line. What's the gap?

I'm going to need Simon to help me with that. While Simon is doing that, 37% is the increase in marketing investment as then if I add affiliate numbers into that, it makes it higher, it brings it up to 50%, I think. So maybe that's a differential, but I'll let Simon go into the detail.

The breakdown of the cost, the cost line goes up more like 15%.

Yes. So some of the marketing will increase over there will be across the affiliates as well that John referred to. So the marketing line that you see in the segment note is just pure marketing costs. The affiliate marketing goes through cost of sales.

Okay. Great. And last one, I promise. Is games on third-party platforms what's the future? Is that some value to be realized that inset be strategically part of the group?

Yes, I think there is value to be realized. We are still enthusiastic about that part of our business. It's had a difficult 6 months, but I think we're at the bottom of that. And my expectation is that, that will turn on in the second half. We're still introducing new brands. And yes, I think we are optimistic about the future of that business. But the next kind of 12 months will determine it, I think, but no -- we are keenly enthusiastic.

Is it getting marketing money -- some of this marketing money behind it even though you can't control the product?

It is. We do -- well, we sort of control the product. We're not the platform owner here. So we're not the licensee, but we are responsible for the marketing and the front end of the platform. So it's our brands. We control the CMS. So we control the way the site presents to the customer in real time and we are delivering the marketing dollars behind those sites. So we are in reasonable control over the offering to the consumer, but not -- ultimately not the platform in the license holder. That's the model. It looks like we've got a very large number of brands here, a very large number. And to date, it's been a successful business. It's had a tough 12 months. I think we've got a very, very good team managing this business, and we expect to now be turning it around. But we'll have to see how -- each of those platforms are different, and we'll have to see how that plays out over the next 12, 18 months.

Our next question comes from Greg Johnson at Shore Capital. If you could take yourself off mute, please go ahead.

Just turning one of Ivor's question on its head there. The operational gearing at Grosvenor venues is probably lower than one would expected. This would suggest that the cost base is lower today than it was pre-COVID. Is there any sort of temporary reasons why that should be the case? Or could we expect that as revenue because those profit could get back quicker to sort of past levels of growth ahead of revenues? And secondly, just on digital with the migration now with Mecca and all the operational tweaks and developments you can put through. How quickly should we expect that to start to come through on an acceleration in the top line?

Great. Let me take the first one, and maybe, Simon, you can take the second one, if you wouldn't mind. So let me take -- let me start with the first one. So -- the leverage of the Grosvenor business. Yes, so we did -- as you -- Greg, you'll recall, we put a lot of change through the Grosvenor business in the early phase of the transformation program. And we did take a lot of cost out of the business, and we changed the kind of leverage quite significantly back in late 2018, early 2019. And that reflected in a very strong turnaround in the profitability performance of Grosvenor. And it coincided, obviously, with the business growing in revenues, too. So we managed to deliver on both of those objectives. And over the past 6 months that the margin in the Grosvenor business held up very strongly despite the fact that obviously, revenue has been down. So as revenue comes down, you'd expect the margin, and I think that's implicit in the question, you'd expect the margin percentage to come down too. And it has come down from the highs of where we were in 2019, '20 pre-pandemic, but not by as much as you might have thought given the revenue number in the first half. And that's in part, because we've been running at a lower cost base than we would like. So we have had -- like the rest of the hospitality sector, we've had more vacancies in the Grosvenor business than we would like. And that has impacted a bit on revenue. So -- and it's impossible to determine. Our NPS scores -- so, our customer scores of the service that we've delivered have held up really well. In fact, if anything, marginally increased, increased significantly in Mecca actually during the half, increased margin in the Grosvenor business. So that's positive. But nonetheless, one of the keys in running a casino business is to optimize table opening and have your tables open in line with demand. And a lot of our investment in systems is driving to exactly that, so we can optimize table opening. Make sure we've got -- we're using AI to ensure we've got the right people in the right venues at the right time is what we're doing. And so -- and a lot more work to do on that actually. But we have been running behind on Grosvenor colleague numbers in the first half, and we've been playing catch up. And partly, that is a function of post-pandemic, partly it's a function -- which I mean people -- colleagues on furlough, and at the end of furlough, making a conscious decision as to whether they want to return or not. And there's been some impact of Brexit on the return to work in Grosvenor too, not surprisingly, actually, because historically, casinos in the U.K. have relied heavily on European nationals coming to London, coming to the U.K., coming to our big cities to run tables and have a good time. And now that's more difficult for folks post-Brexit. So we've been running light on people. We've been working very hard to recruit. We've been working very, very hard to bring people in at a kind of front of hand, spa, kitchen level and then accelerate people through. We've been running gaming academies up and down the U.K. We've delivered about -- I've trained about 300 promotions into licensed or dealers in the first half. So -- but nonetheless, we've been running behind. We've got some catching up to do, therefore, on colleague numbers. It will reflect in revenue, but we've got some catching up to do. So there will be some upward pressure on costs in the second half of the year. There's also going to be some upward pressure on energy costs, because the split between the October, November, December months and January, February, March months are much more heavier energy use in Jan, Feb, March in truth. So we'll see some higher impact of energy costs coming through in the Grosvenor business in the second half. So I think our margin will come down a bit in the second half, despite the fact that we expect our revenue to grow. Hopefully, that's answered the question. Simon?

Greg, just picking up on your second question there about the digital migration. I think as John did maybe mentioned earlier, through since the migration completed in the general, Mecca numbers are back at pre-pandemic numbers that we were seeing come through in terms of our weekly run rate. So we are now expecting that, obviously, to continue and take through over the next 6 months. So we would expect that to come through. Obviously, the team move on towards looking at the Grosvenor migration, but freeing up some capacity to good product development into the Mecca platform as well. So we're being quite pleased that we've got within the first few weeks, went back at the pre -- the pre-pandemic levels we were seeing before. We transitioned and we'd expect that to continue.

We have a follow-up question from Richard Stuber at Numis.

Just a couple of follow-ups, please. The first one is, Simon, I think you mentioned that the breakeven for Mecca has gone up from GBP 2.4 million up to GBP 2.7 million. I'm assuming energy costs will stay high and the end, so it doesn't go back to where it was. In terms of breakeven, generally in our state, are you seeing some more marginal venues there, which you may consider rationalizing? And the second question. Again, it's about digital. Are you talking about sort of launching of [ eSports ] in Spain and in Portugal. How material do you think these 2 parts could be? And how quickly do you think this top line can grow?

Let me deal with them in reverse order. First of all, so I think one of the challenges, Richard, in Spain at the moment is we're continuing to grow. We've got a very strong brand in, but with the inability to provide any incentives to new customers, and that's a customer -- that is not a customer today that to become a new customer, you can't incentivize somebody. And then even when somebody becomes a customer, you can't incentivize anybody in the first 30 days or until they verified themselves and made themselves available to offer incentives. So that's a bit of a weakness that the customer actually has in Spain today. But of course, in sports betting, the key driver of business is the price, what price around Madrid on this weekend is the driver. So the sports operators do have an advantage over us right now in terms of customer acquisition. So the importance of getting Yo Sports and Enracha sports live is very important. And it's a project been working on for a few months now is progressing well. We're a bit ahead of schedule, and we expect to be going live, as I say, in the second half. Portugal, we just don't know. I mean there isn't a bingo operator in the Portuguese market today. We're going to launch YoBingo. It's a strong country in terms of bricks and mortar bingo, but we don't know what the online strength will be, because the market doesn't exist. So very much kind of new door and territory, we really don't know. We'll find out before it's time, but optimistic. And we're going about this in the same way that we've -- the same success formula of the Yo business, not one that we inherited, obviously, one that we acquired. But the same formula that we -- that the Yo business adopted in Spain is exactly the same program that we're delivering into Portugal. So our fingers are crossed, we hope it goes well. We don't know till we try. And the first question was about Mecca breakeven. Yes. So in the first half, circa 40 venues made positive EBITDA, including the rents, so kind of on a GAAP basis as opposed to IFS 16 basis, there you go. I'm going to say that, Simon, I'm impressed, my gold star for the day. And so -- yes, but that means that we've got circa 30 venues that were underwater in the first half. But look, we are not focused on rationalizing or closely state. What we're focused on is getting all of those venues back into delivering profit margin. It's not a big surprise that in -- with the conditions -- the market conditions we've had over the past 6 months, Mecca is impacted more heavily than Grosvenor just by virtue of the makeup of its custom base demographics with customers. And as we now come out of that, we expect that we will be driving -- and my expectations we will be driving growth. And these are important social facilities within a community. So the last thing I want to be doing, I mean, the team know my view on this, if when we close the venue, it's that we have failed. So this is all about driving customers back into those venues in the second half of the year.

Ivor has come back to the floor. Ivor you got one minute.

Can you talk about the lease maturity profile in Mecca following on from that question and what's happening on renewals? They are less than a minute, 40 seconds.

I'll be very quick. So we have taken advantage, if that's the right word, but the way we're putting that's a wrong word to use, but we have been busy during lockdown, renegotiating leases wherever we possibly could. And we had a lot of leases that were coming up for renewal during 2020, 2021. So we've done a lot of release renewals, particularly in Mecca. We've done some Grosvenor ones too. But we've done an awful lot of lease renewals over the past 12 months, and we've made significant savings in rent as a consequence. And what we're not doing in Mecca, and we're not doing it in Grosvenor where we can, where we could possibly can. But certainly, in Mecca we're not doing is signing long leases. What we're doing is negotiating leases with landlords on with sensible breaks. So I think the lease -- and some Enracha in numbers, I think, are there, but the lease position in Mecca is in very good shape. Not to say I want to be closing these, I want to be trading all of these venues.

Excellent, John. We are done with questions. So back to you for any closing comments, please.

Thank you very much. Thank you for all the questions. Very much appreciated, and thank you for joining us today. We are hopefully, when we come back in August, it will be first time we'd love to meet people in person again. So looking forward to that. But thank you very much for joining us this morning, and enjoy the rest of the day.

Thank you very much for joining, everyone. Bye-bye.