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

Good morning, everyone. I'm John O'Reilly, I'm The Rank Group CEO. I'd like to welcome you to The Rank Group's results presentation for the year to the 30th of June 2022. Thank you for joining us this morning. We had planned to [indiscernible] this results presentation in person, but the train strike defeated us, so hopefully next time around. In terms of batting order, I'm going to provide you with a summary of the group's 2021, '22 performance. Richard Harris, who I'm delighted to introduce to those of you who is yet meet Rank's new CFO, who will run through the full year numbers and provide some guidance, particularly around energy costs for this year. I'll then provide an update on our key strategic pillars, result of key initiatives in our transformation program for the coming months, our current thinking on our ESG developments and on the U.K. gambling -- or the U.K. government's gambling review, and we'll then move to any questions that you have. So well, hopefully, no surprise in the underlying operating profit, as we updated you in June that we're experiencing very tough trading in the Grosvenor Casinos business in the second half of the year, and that softened our expected outturn to GBP 40 million. We came in at GBP 40.4 million, much better than the loss of GBP 82.4 million we incurred last year when our venues were closed for large parts of the year under lockdown, but a disappointing performance relative to our expectations, particularly after a strong start and with the business improving up until Omicron hit in late November and through December. Our second half underlying operating profit was GBP 16.3 million, and that was down from GBP 24.1 million in the first half of the year. All of our businesses, [ bar in ] Grosvenor Casinos has performed more strongly in the second half, but a combination of soft trading, particularly in London and the sharp rise in energy prices resulted in a very sharp decline in Grosvenor profitability in half 2. Fundamentally, Grosvenor is a strong business, and we've been accelerating investment in both products and venues so that we're well positioned for a strong revenue growth as visitors gradually return, particularly overseas visitors into London and for the benefit of regulatory reform when it arrives. The impact of the pandemic has been particularly severe on land-based bingo, and we've been reshaping the Mecca business for return to profitability. Land-based bingo business has also been hard hit in Spain, but the investment program into the gaming machine offering we commenced pre-pandemic has delivered very strong returns now that we're free from COVID restrictions in Spain. As expected, we've had a much stronger performance in the digital business, and there's more to come as we complete the final piece of integration following the acquisition of Stride. And that's the migration of Grosvenor onto our proprietary technology platform in a few weeks' time. We ended the year with net cash of GBP 19.1 million, and our debt has now been reduced to just GBP 78.8 million. And we strengthened the management team, separating the leadership teams of Mecca and Grosvenor venues to ensure more focus, and we've made 6 appointments to the executive team since the last year-end. We have lots of opportunity ahead of us, and the team is focused on delivering against our strategy and key initiatives within our Transformation 2.0 program. So again, a little more into the detail. I'll start with Grosvenor Casinos, which, as I've said, had a tough second half to the year. Net gaming revenue across the piece was down 19% on calendar year 2019 with London down 27%, and the rest of the U.K. down 13%. We've been making good progress in the first half of the year following reopening in mid-May in England, a little bit later than May in Scotland and Wales. But Grosvenor went into decline with the onset of Omicron, and we continue to trade softly through the second half with visitor numbers only really picking back up in London in Q4. And London is key, as whilst it's 9 of our 52 venues, those 9 London venues account for around 40% of revenues in a normal trading year. All major [indiscernible] city center locations have been weakened by the slow return of office workers, but the London casino business is particularly sensitive to Middle Eastern and Far Eastern visitors. And that has been slow to pick up. And it was only in June that we started to see international customers slowly arriving back into London, and that trend has continued into July and August. We reported a GBP 34.9 million operating profit at the half year for Grosvenor and now reporting GBP 45.1 million for the full year, clearly showing the impact of weaker trading through the second half of the year and the impact of the big spike in energy costs. Like all hospitality businesses, we've seen challenges in retaining and in recruiting colleagues, but we've been prepared for that with no redundancy during the lockdowns. We have an incentive for gaming colleagues to return post the first lockdown and we've had gaming academies running up and down the U.K. training new gaming recruits. We've also implemented 2 wage increases in October and in April, 9% in total across the year. And in London, we've moved all colleagues up to at least the London Living Wage. We've accelerated investment with 8 venues receiving development, including a new concept venue in Glasgow's Merchant City, which broadens the appeal of casinos to a larger audience of consumers. And we're seeing strong returns just about across the board with our strongest performing venues typically being those that have recently received investment. We've also been investing in new gaming machines, electronic roulette terminals, gaming table, wheels, a new table management system and new products, including 2 recently trialed new progressive roulette games, which we intend rolling out across the estate. It's been a tough year for Grosvenor Casinos, but this remains a strong business with lots of opportunity, both through investment to broaden the appeal and through a favorable outcome of the government's gambling review, on which I'm going to say a little bit more later. In terms of current trading and in Grosvenor [indiscernible] current trend across all our businesses, I'll return to that a little later on. To Mecca, unlike all land-based bingo businesses, Mecca has been hard hit by the pandemic. The business has been heavily impacted by customer caution about COVID. Our older customer cohort was slower to return following reopening. And after making reasonable progress through to October, visitors fell with the onset of the Omicron variant and as case numbers grew. Since January, we've seen customer numbers slowly build, but volumes will remain well below pre-pandemic levels. Across the year, visits were down 32% on calendar year 2019 with revenues down 24%. We're seeing good volumes of new customers, but these younger customers typically visit infrequently, and this does not offset the significant decline in visits amongst the older cohort of bingo players. Bingos are routine. And with that routine lost due to lockdowns and concerns about mixing in doors. As fears of COVID gradually eased, we're into a cost-of-living crisis, which doesn't help encourage a return. So we now see recovery of bingo as a long haul. Mecca Bingo delivered an operating loss of GBP 0.8 million in the year with the business delivering a small profit in the second half. We're investing in delivering great value to our customers with lower prices to play that main stage bingo game, which is the core reason why customers visit, and we guaranteed prices in every session. We're reshaping the business. We've closed 7 loss-making venues in recent weeks in line with lease-ins or lease break opportunities. And that takes [ our estate ] from 71 venues down to 64, and it narrows the focus for our strengthened management team onto our stronger performing venues. We've opened a new concept venue in -- at Mecca Luton, which continues to be work in progress, but is receiving excellent feedback from our customers. It is a broader local community entertainment venue of which bingo is at its core. Our objective is to grow venue-based bingo to ensure sustainable profitability from what are really important social amenities for our local communities. So Enracha, our Spanish bingo and electronic gaming business, which recovered very strongly in the year with revenues down just 5% on calendar year 2019. This number is not dissimilar to Mecca, down 33% across the year, but with continued slow recovery in visit numbers through the second half. This decline particularly impacts bingo revenues, which were down 20% in the year. But here, gaming machine revenues have been very strong. In addition to game machines, we also offer electronic roulette machines, B3/B4 electronic bingo machines and sports betting terminals. And looking at that machine business as a collective, revenues were up 6% on 2019, reflecting the investments we've made in our Enracha venues and machine estate over the past few years. And with that sharp recovery in revenue on machines, Enracha's operating profit grew to GBP 8.1 million for the year, up from GBP 7.5 million across calendar year 2019. And there's further opportunity here as more customers return and with continued investment in the Enracha Stadium, which is the machine and sports betting facilities and with a new machine management system having recently rolled out and with the new [indiscernible] loyalty program, which we're currently trialing. Our digital business performed well with good progress being made across the development technology. Growth in revenue gets a difficult market backdrop and a much stronger operating margin as the synergies from the Stride business has been delivered. Across the piece, NGR grew 4%. Grosvenor grew NGR 7%, supported by venues being back open and a strong return of omnichannel customer revenues. In total, omnichannel customer revenues within Grosvenor Digital up 157% on the prior year. Mecca Bingo Digital revenues declined 3% in the year. We delivered limited new developments for our customers in the first half as the team prepared for the migration of Mecca to our proprietary technology platform in January. Migrations always negatively impact customers, and we saw inevitable but small drop in business immediately following the migration. But the business has been building back strongly in the second half as we now deliver enhanced products, features, customer experiences on what we call the RIDE platform. The Stride brands operating on the RIDE platform grew 11% with those -- sorry, grew 11% Stride brands across the piece, but with those operating on the RIDE platform growing a very healthy 31%. Spanish-facing Yo and Enracha brands saw revenue flat year-on-year as the Spanish government's marketing restrictions took effect on new customer acquisition. Nevertheless, with the result of a sharp decline in marketing investment, the business delivered strong returns. The Digital operating profit was GBP 18.7 million, up sixfold on the GBP 3.1 million of the prior year. Grosvenor is the remaining brand to migrate to the RIDE platform, and we're planning to complete this in the next few weeks. And that then frees our considerable development capability and resource to focus on the extensive road map of customer-facing developments over the coming months. It's a very exciting time for the business as the Stride integration completes and with a strong technology base from which to further develop the business. And then final migration also delivers further GBP 4.5 million of cost synergies in the year, bringing total cost synergies delivered to date to GBP 14.7 million, which is broadly in line with the acquisition plan. In Spain, we've also migrated Enracha onto our proprietary Yo technology platform, and we'll be launching YoSport in the coming weeks. I'll now hand over to Richard, if I may, to take you through the financials.

Thank you, John. Good morning, everybody. I'm great to be here presenting the results for the first time. I'll start by walking you through the financial highlights for the year. Overall, like-for-like net gaming revenue was GBP 644 million, up 98% on the prior year, which was clearly heavily impacted by the impact of COVID-19 and post closures and the operating restrictions. Over the course of the year, like-for-like group revenues were back to 90% of pre-COVID levels with Digital 27% up in part driven by the Stride acquisition and venues down 19%. Underlying like-for-like operating profit ended up at GBP 40.4 million compared to the loss of GBP 82.4 million last year and EBIT of GBP 104 million pre-COVID. Grosvenor, Mecca and Enracha venues all have a high degree of operating leverage with every plan of incremental revenue dropping through to profitability, a healthy rate. That presents a real opportunity in the years ahead. But against the pre-COVID period, it's the lower revenue performance, combined with a much higher energy costs that has held back profitability. And excluding separately disclosed items, underlying EPS was 4.3p per share, an improvement on last year's 20.3p loss. Net free cash flow was GBP 60.8 million, and I'll walk you through the various inflows and outflows on a later slide. Finally, as John mentioned, we ended the year with a net cash balance excluding leases of GBP 19.1 million. This cash balance provides us with significant protection against the uncertain macroeconomic and trading environment but also a flexibility to invest in the business over the coming 12 months. So as you can see from these highlights, whilst the recovery is underway, there is still much to do to get the business back where it should be. Okay. So moving on to look at net gaming revenue in a bit more detail. In the first quarter, Rank delivered GBP 12.6 million of average revenue per week, which was an encouraging start to the first 4 quarter post reopening, especially given there are still some operating instructions in place in the U.K. and Spain. This improved to GBP 13.1 million in quarter 2. The first part of the quarter was particularly strong, but the introduction of social distancing measures and operating restrictions due to the emergence of the Omicron variant impacted performance in the second half of November and all of December. I'm sure we can all [indiscernible] back to and lots of festive celebrations were being canceled [indiscernible] their Christmas plans with their families. And absolutely, nobody wanted to celebrate my new job with me at Rank when that's confirmed 1st of December. Revenue in quarter 3 averaged GBP 12 million, a drop of over GBP 1 million per week on the previous quarter. We stopped the listed numbers across the U.K. venues. Q4 revenue took a further stepdown to [ GBP 11 million ] per week, whilst Q4 is typically a seasonally low for the venues businesses. But in addition, growth was impacted by a slower-than-anticipated return of overseas customers, continued soft visitor numbers across the U.K., and then this was compounded by lower-than-average table margins. So overall, a disappointing performance in the second half of the year after an encouraging start. The first 7 weeks of this year have seen a step-up in revenue to GBP 12.5 million, up 3% on the equivalent period in the prior year. Clearly, this is a step in the right direction, but still more to do. The table on the left-hand side here walks you through the income statement for like-for-like underlying operating profit through to profit after tax. There's a few items I'd like to draw to your attention. Closed clubs and FX in the year of GBP 0.6 million relates solely to the closure of one Enracha venue in Spain, which closed [indiscernible]. The net financing charge of GBP 13.4 million is evenly split between GBP 6.7 million of IFRS-16 charges and the same value of true underlying financing costs. The largest component parts within separately disclosed items of GBP 47.9 million on the VAT rebate and impairments, and we'll go through those items in a bit more detail on the next slide. The underlying effective tax rate was 23.5% and discontinued operations profit relates to a further cash inflow on the sale of the Belgian casino, which occurred in FY '21. It relates to specifically [indiscernible] which retained -- Rank retained the economic benefits as part of the disposal. Okay. So here, you can see the breakdown of separately disclosed items in more detail and a relatively substantial in the year for a number of reasons. As is well documented, proceeds from the VAT repayment were GBP 82.6 million, inclusive of interest and net of the fees incurred. There was a net impairment charge of GBP 25.8 million. And within this, gross impairments totaled GBP 47.8 million across the number of Grosvenor and Mecca venues and can be attributed to the lower-than-expected performance in the year. The impairment reversals related to a small number of clubs in Grosvenor and Enracha whose performance has been better than anticipated. A vacant property provision of GBP 10.4 million [indiscernible] during the pandemic, and that's been released. Amortization of GBP 11.7 million related to the acquisitions of Stride Gaming and the Yo brands. We provided some further costs associated with the closure of several Mecca venues and they totaled GBP 4.7 million. And finally, there are a few smaller items, which I won't go through in detail, but are listed on the slide for completeness. Moving on to the cash flow. So net free cash inflow in the year was GBP 60.8 million, and this was predominantly driven by the VAT rebates within the separately disclosed items. Excluding cash flows and SDIs, there was a free cash outflow of GBP 9.8 million, and this predominantly related to capital expenditure of GBP 40.6 million and lease payments of GBP 12 million that we deferred from prior years. The group saw a cash outflow in the second half due to the weighting of CapEx, timing of in-year lease payments and the working capital outflow, all of which combined to give a lower cash balance at year-end compared to [indiscernible] December. In the table on the right-hand side of this slide, you can see the GBP 8.8 million further inflow from the sale of the Belgian Casino in addition to the net proceeds of GBP 25.2 million in the prior year. Taking all of these factors into account, we closed the year with that net cash balance of GBP 19.1 million, and that provide protection as we navigate through the uncertain trading environment as well as room to invest in the business to take advantage of strategic opportunities. This slide gives a brief overview of the current liquidity position, and we ended the year with a total cash and available facilities of GBP 161 million -- GBP 160.1 million, an improvement in excess of GBP 60 million on the prior year. Within this, we secured an additional facility of GBP 25 million with [indiscernible] in July 2021 on the same financial covenants as [indiscernible] in place in the group's other facilities. The RCF reverted to being undrawn in July 2021. And in May 2022, we've made the repayment of GBP 29.6 million on the term loan used to finance Stride acquisition. You can see from the debt maturity profile on the right-hand side of the slide, we are well placed over the short term. As you'd expect, we will seek to extend or refinance the revolving credit facilities that we have in place at an appropriate stage over the next 12 to 18 months. Moving on to look at some of the factors that will impact our performance in FY '23. John is going to give you an overview of the outlook shortly, but I just wanted to touch on some specific external factors that will influence our operating cost [ price ]. Energy prices are by far the biggest item, and I'll go through those on the next slide. On the people side, we are operating in a competitive market for employees. And not unlike others in the hospitality and leisure industry, we're facing upward pressure on salaries [ in order to ] recruit and retain high-quality colleagues. The 2 pay reviews in the year have resulted in combined salary increase of around 7% across the group. In addition to those underlying increase, we're also paying the additional employee natural insurance contributions of 1.25%. We're facing pressure on food and beverage input prices of around 9%, and there are some key contracts in technology and other areas where we have faced inflation-linked cost increases. Finally, there was government support of GBP 6 million received in FY '22, obviously, it won't be repeated in the year ahead. As you'd expect, there are a number of actions in place to mitigate to get some of these factors, which are listed on the right-hand side of the slide. Some of these more material [ statements ] include delivery of the synergies [ associated with ] Stride acquisition. As John mentioned to date, we said GBP 10 million of savings delivered, and we expect to take a further GBP 4 million to GBP 5 million savings post the Grosvenor migration. Ongoing cost efficiency programs related to roll out of the demand-led rostering tool within Grosvenor, new payroll systems and a new point-of-sale system across both Grosvenor and Mecca. So going into more detail on energy, which is a significant cost pressure in the year ahead and has some material uncertainty. As you can see from the chart, electricity prices were relatively flat throughout 2019 and 2020 with even the impact of COVID-19 on global manufacturing and wider energy consumption in April 2020, not really have a material impact on prices on this scale, even though they were widely reported as putting downward pressure on energy prices at that point in time. The reopening of global economies post COVID-19 and the result of increase in demand for energy started the price increases in summer of 2021. Following the Russian invasion of Ukraine until February '22, there have been a significant number of further price increases for a variety of reasons. Whilst we expect to make some inroads through energy efficiency programs, our energy across our forecast increased to around GBP 46 million in FY '23 based on current market prices. The price of energy consumption in [indiscernible]. But at this stage, we remain exposed to market volatility beyond the end of September. The final slide has some further guidance on particular items in the year ahead. Total capital expenditure is expected to be around GBP 40 million. Within this, we expect to continue the development of the Grosvenor estate with 8 to 10 venues expecting a material refurbishment. We continue to invest in product and system improvements in Grosvenor and investment in [indiscernible] units and customer journey improvements in Mecca. On the Digital side, we have the final spend on project [indiscernible] the transition to the [indiscernible] platform. And then further platform development enhancements will follow after that. There are some small central technology investments in HR and finance. The underlying effective tax rate is expected to be 16% to 18%, slightly below the U.K. statutory rate due to some profits in the digital business being recognized in overseas lower tax jurisdictions. We expect to make the next term loan repayment of GBP 34 million in May, and the total finance cost for the year are expected to be around GBP 13 million. We started the new financial year with the removal of bank-imposed restrictions not to pay our shareholders a dividend, which was a condition of the financial covenant waiver put in place during the pandemic. As the group's performance continues to improve beyond the trends seen in the last financial year, we'll reassess the group's approach to paying dividends to our shareholders. We expect to provide further clarity around the resumption of paying dividends at the time of the interim results in January. That's it for me. I'll now hand back to John for the strategic update and outlook.

Richard, many thanks. I don't think there have been any cancellation. I certainly did celebrate your new job at Rank. And we've reviewed our strategic pillars in the year and these small changes and there are relatively small changes are reflected here. Our purpose hasn't materially changed, which is to deliver exciting and entertaining experiences in safe, sustainable and rewarding environments. And we achieved that through reflecting the changing needs and expectations of our customers, our communities and our colleagues but with the overriding purpose being to excite and to entertain. No material change in that regard. And our strategic pillars have also seen small changes to better reflect our kind of key drivers for the transformation of the business. And number one, they provide a seamless and tailored experience for the customers across venues and online. And that emphasizes the critical importance to the cross-channel experience for our customers, both in Grosvenor and in Mecca. Driving digital growth powered by our now proprietary technology and our live play credentials. Our digital business is now in a different position, and we are set to provide that seamless cross-channel experience to our customers. We've been doing much of that, a lot more to do. Continuously evolving our venues estate with engaging propositions that appeal to both existing and new customers, and that's about broadening the appeal and positioning for the changes in land-based regulation, particularly for the U.K.'s casinos. Being passionate about the development and well-being of our colleagues and the contribution we make to our local communities. And it's very much a people business. We employ 7,000 colleagues. We have a big positive impact on the communities in which we operate. And finally, but not lastly, building sustainable relationships with our customers by providing them with a safe environment in which to play and as well as exciting and entertaining our customers, we do it within safe environments, providing safe experiences. Now this strategy is delivered through the transformation framework, which ensures all of our key initiatives are properly prioritized, resourced and are tightly [indiscernible] progressed through to delivery. And with the much improved financial position in the group, we've been able to reaccelerate investment in the transformation program through the second half. And there's a page in the appendix which highlights some of the key initiatives in each of our transformation work streams that were delivered in the past 6 months, second half of '21, '22. And this chart highlights what we are delivering in this first half of '22, '23. And I'm not going to go through all of them, but just picking out maybe a few of the key kind of deliverables here. In Grosvenor, we've got 6 refurbishments planned into the first half of the year. Excitingly, and we're also launching a live roulette table progressive, which is a U.K. first and which is linked across the Grosvenor estate to provide some very large jackpots for our customers. In Mecca, we're rolling out a program of investment to improve the external appearance of some of our key venues. We're also improving our gaming machine layout to a large number of venues and making further changes to the gaming machine product mix. I'd like to do a lot more of that with a change in the 80:20 rule that I'm hoping is delivered by the government's gambling review. And that's the 80:20 rule, which restricts B3 machines in venues to 20% of our total machine offering. We have a lot, I think, account for 79% of our revenue. We've got a lot of machines in our Mecca venues using a lot of energy at great costs without customers playing them just so that we can offer the number of B3 machines we need to offer. Anyway, I should continue. And in Enracha, we're rolling out loyalty card that has been successfully trialed. I think I mentioned that earlier. In the cross-channel work stream, we are extending our live online streaming to a further 4 Grosvenor casinos, a very important part of our live offering to customers. And we're developing personalized online content for cross-channel customers, reflecting their local casino when they go online and, very importantly, working on a unified membership system within Mecca, which would see single membership online and in venue. Specifically within Digital, once we complete the migration of Grosvenor to the RIDE platform in a few weeks' time, we embark on the road map of customer experience improvements and new products and features across all of our digital brands. In Spain, we are launching YoSports, being tested with customers today. We hope to complete the regulatory process to be able to go live with YoBingo in Portugal in this first half of the year. In a safer gambling work stream, we're introducing new markers of harm data analytics model for online play, and we're completing a face-to-face training [ program for ] over 1,500 colleagues across Grosvenor and Mecca. And that's a big investment in a program which we are being very well supported by Gamcare. Finally, in terms of our organizational capability, we're underway now with the build of a new central engager platform, which is an enhanced customer view, bring all of our data from our business together, which enable delivery and use of customer data in real time. So plenty happening in the business to drive revenue and profit growth. Quickly turning to ESG. In January, we published our first Responsible Business Report, which provided an overview of the initial work we've been undertaking to establish the appropriate approach to our ESG strategy. And since then, we've continued to make good progress across our 4 identified areas of focus. And we now have KPIs in place within each of those areas. In terms of just some of the progress we've been making in our key area of colleagues, we have a new employee value proposition, which has been rolled out across the Grosvenor business, providing really clear career pathways and also bespoke learning and development support for colleagues. We also launched 6 new Equality, Diversity and Inclusion colleague networks during the year. In regard to customers here, much of the work inevitably focuses on safer gambling, and we've introduced a new data-driven risk model to help our colleagues in Grosvenor to better identify potentially at risk play. We're rolling out Playsafe, which is a new machine management system in Mecca to provide additional protections around machine play. And as I've already mentioned, we have developed and now introduced new markers of harm model into the digital business to further improve our real-time customer interactions and our controls. And within our local communities, we've extended the Carers Trust partnership for another year. And in our Rank -- our colleagues across Rank have now raised over GBP 3 million in support grants up down the U.K. for unpaid carers. And in terms of the environment, we've commenced work in sensing out how we will achieve net zero in terms of carbon emissions, driving both social and very importantly, economic benefits. So we will be publishing a full -- our first actually full sustainability report next month. To the U.K. government's review of gambling legislation, and we were all, I think, expecting the publication of a draft white paper to arrive before the summer recess. It didn't happen, of course. And we now await the conservative leadership election and the subsequent appointment of the Secretary of State and the ministerial team at DCMS. In all likelihood, it would delay the white paper into the late autumn, I mean, quite possibly into 2023, and we can't know. And we review focuses heavily on digital or remote gambling, and we're expecting more prescriptive measures to emerge, which hopefully will help draw a new line in the sand for online operators. Now all of this will wait for the white paper to be published, and we expect the Gambling Commission to publish their proposed online affordability requirements within the next few weeks. For land-based gaming, of course, it's a once in 20-year opportunity to ensure that legislation and regulation is appropriate for today's consumers and it's equitable relative to online regulation. That was one of the government's key objectives, of course, when it launched the review. By way of a reminder, the 2005 Gambling Act creates [indiscernible] of 16 new casino licenses in the U.K., of which 8 were opened, but they operate under very different and more favorable regulations to all the rest of the casinos in the U.K., which continue to operate under the old regulations of the 1968 Gaming Act. The key regulatory changes sought by the casino sector are harmonization of the '68 Casino Act with those of the 2005 Act enabling up to 80 gaming machines in casinos 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 generator, as occurs online, rather than necessarily on a live gaming event, which would enable blackjack and other table games to be played by customers at much lower stakes than we can deliver on live tables; and the ability to enable customers to access cashless gaming transactions in the way we do any other transaction today. Now with the exception of sports betting, which would likely require primary legislation, those other proposals could be delivered through secondary legislation, which means they could pass through the legislative process very quickly, but first, we need to clear the white paper. For the bingo sector, the key changes are the removal of the current requirement that no more than 20% of game machines are category B3, the point I've already made and then by far, as I've said, the most popular machines with our customers. And we've asked to -- our government to enable additional side games for customers to play alongside the main stage bingo game, giving more opportunities to win and, as with the casino sector, the provision of cashless gaming. Now from the various kind of media leaks of the draft white paper, we expect to make progress on machine harmonization and on sports betting in casinos, but we haven't made progress [indiscernible] our modest proposals to regulatory change to the delay in the white paper clearly provide us with the opportunity for further engagement with the team of [indiscernible] DCMS and more particularly with the Gambling Commission to ensure it fully understands the proposals and the consumer benefits which derive from them. To our current trading and the outlook. NGR is running -- and we're only 7 weeks into the new year, NGR is running 3% ahead of the prior year in those first 7 weeks. Digital NGR has grown 12% in the 7 weeks, venues down 1%. Grosvenor venues NGR is down 4% year-on-year, but that average weekly NGR in the 7 weeks is 11% ahead of the Q4 run rate. So a bit of a step-up, some progress. And that's the result of a gradual return of overseas customers into London. Outside of London, whilst it varies by location, trading remains quite soft. Mecca visits are up 8% and NGR is up 2%, and that is despite the very hot weather in recent weeks, which is never a good for bingo. Our trading conditions are likely to remain challenging, clearly in the months ahead as inflation squeezes consumer discretionary expenditure and inflationary cost pressures. And for us, that's particularly energy continues to hit operating margins. But with a successful migration to proprietary technology in the digital business and the investment we're making in the Grosvenor estate, I think we'll be trading very competitively throughout the year. And as the strong balance sheet enables us to continue investing in our Transformation 2.0 program, that positions us well both for growth and for anticipated regulatory reform to land-based gaming, which we hope will follow the U.K. government's review of gambling regulation. And at that point, Richard and I will take any questions. Thank you.

[Operator Instructions] The first question comes from David Brohan at Goodbody.

I have 3. So firstly on growth, you put in a good slide there around kind of monthly visits and how that has trended over the past 12 months. Could you just give any color in terms of how that compares to pre-COVID levels? And then secondly, in terms of macro weakness, where do you think that will be felt most acutely? And are you seeing any evidence of weakness in the digital business already on the back of macro? I know a number of your peers kind of called those -- have called out macro weakness in recent weeks. And then finally, just on Digital, I think definitely some positive signs in terms of the performance there. The white paper obviously remains a kind of hurdle across. But how do you think the business compares now from a responsible gaming perspective versus peers or even versus where you were at a couple of years ago?

Okay. David, thank you for those. So let me start with the responsible business one in Digital. I think we implemented pretty tough affordability controls back in 2020 across our business. And I mean it's difficult to know, be precise about what the government anticipates or what the Gambling Commission now are going to publish in the coming weeks about affordability requirements, but we suspect the -- our implementation is as tough as if not tougher than what might come through that change in regulation in the coming weeks. So I think on affordability, we're pretty much there. And -- but I say that in the context of this, which is that we employ 7,000 colleagues, and we have millions of customers across the year and millions of transactions, and we have to manage it without the benefit of hindsight. So this is about sewing that safety net and ever tighter to prevent errors arising. And that's a tough challenge, but we continue to do that. But I think our core kind of position is one where I wouldn't expect certainly in terms of affordability changes to have a very material impact from where we are today, that may even help us from where we are today. So we're tough and tight on that. In terms of visits, and we're clearly down on where we were in Grosvenor pre-COVID, it is coming back. So if I look at London in just recent weeks, just take the current 7 weeks of the year, and it's only 7 weeks. And you got to be careful about percentages over 7 weeks, but 7 weeks in London, visits are up 34% on the same period last year. It's only 7 weeks. Outside of London, it's tougher. But London has certainly bounced back from kind of June. But we're still not back to where we were pre-COVID levels. It's coming back. It's slow, but it's coming back, but international travel back into London certainly picked up. I think a lot of our customers, as you appreciate, are Middle Eastern and when they arrived at Heathrow Airport, and it was 40 degrees. It wasn't quite what they bargained for, given they were trying to get away from the summer heat, but London has certainly picked up, still a way to go to be where we were pre-COVID. In terms of the macro weakness, I don't think we're seeing it yet. Now I know there's no doubt that through the autumn trading will be -- it will be tough for consumers, and that will reflect in discretionary expenditure, I'm sure. But so far, we're not seeing that flow through in the digital business -- and there's lots of other moving parts there, clearly because the backdrop is one of opening and closing of venues in the prior year, and there's lots of moving parts in this. But I think taken in the round, in the digital business, we're not seeing any softening of demand yet. We might do through the autumn. In the bricks and mortar businesses, we're not. And to the extent that we are, and I think this is oft forgotten, actually, is that in Mecca, because so much of our visit volume comes from our older cohort of customers, we're still seeing customers returning. I was in [indiscernible] just a few weeks ago and met a wonderful couple in their 80s. And this was the first time they've been -- at least just a few weeks ago. It was the first time they've been outside for [indiscernible] shopping, but that's the only thing [indiscernible] local shop, hadn't been anywhere. So we are still seeing -- I should add, they had a fight about where they were going to go on their first outing, was it the pub, was it Mecca, or was it church, and Mecca won out. But I suspect they're going to probably next day in -- the church on Sunday. But so we are still seeing that gradual return of customers, and we provide cheap entertainment. So I'm hopeful that, yes, undoubtedly, there's a headwind here. But we've still got something of a tailwind of people returning post the pandemic.

Our next question comes from Richard Stuber at Numis.

I've got 2, please. The lead content of the white paper appear favorable for you. Is there anything you need to prepare for these changes in advance of the gambling at white paper being published? And the second question is I think you closed 7 loss-making Mecca sites at the lease end in the first quarter. How many sort of loss-making Mecca sites do you expect to have this year which are not at the lease end?

So let me take the allegedly concept of the white paper, if you don't mind, Richard, if you wouldn't mind picking up, I should say, Richard and I speak to you as always, Richard, if you wouldn't mind picking up the second one for me. The -- yes, look, it was widely published, wasn't it, in truth. A lot of journalists [indiscernible] access to it, and it did look favorable. I mean it look favorable but, in some ways didn't go as far as we would have liked it to have gone in certain areas. So some of our recommendations, I think, from the leaked white paper looked open to further consultation and [ bleed ] further discussion. And the 80:20 rule that I've mentioned was one of those items but we are -- we were -- I would -- I'm certainly disappointed that it wasn't published. And because this does delay it now for what, I mean, a period of probably 6 months at least, and that is disappointing. And we need -- we need certainty is what we need. And -- but nonetheless, from the modest proposals we put forward, we have been planning, we are planning and -- but across both land-based estates so that we are ready to maximize the opportunity when it comes. Even in recent years, what we've been doing is reviewing when we do any refurbishment. And certainly, the 8 that we've done this year, when we do that, a clear part of the CapEx proposal is how we would implement a change in the machine regulation post the gambling review. So we are preparing for it. And we've been in discussions with machine suppliers about B1 and maybe B3 content in casinos moving forward because this does create -- this would create a much larger machine estate in the U.K. and therefore, an opportunity for more suppliers to enter the market. So that's -- they are ongoing discussions. We're looking at game types that we might introduce. We're introducing now some jackpot style games, which could also clearly benefit in circumstances where we have a larger machine estate than we're allowed today. We've been trialing sports betting. We, this year, put 11 sports viewing facilities into our [ estate of ] 52. So we can't put betting facilities in, but we can at least create sports viewing facilities. So we've been working hard to ensure we are prepared for the changes in regulation, assuming they come, let's hope it's not too long. Richard?

Yes. So Richard, you're right. So we've closed 7 Mecca venues. So it gone from 71 to 64. And Mecca more generally last year was slightly loss making to about [indiscernible]. I think our expectation was -- we were expecting Mecca to return to a good level of profitability in the year ahead, not pre-pandemic levels, but a good improvement on where we were. That has obviously been made much more challenging now in the recent month or so with the increase in energy prices. So I think whilst we have got a number of initiatives underway to improve the operational performance of Mecca that, inevitably, there will [ still be some clubs ] within that in the year ahead that are loss-making. And we're going to continue to keep a clear eye on those. But with [indiscernible] new number, I think we'll keep a close eye on them. And our expectation is that, over time, we've got enough actions in place that will allow us to improve the overall profitability of the Mecca business such that there aren't a long [indiscernible].

Great. Can I just ask just a quick follow-up on that. If those 7 Mecca clubs weren't opened last year, presumably, you'll be profitable in Mecca as a whole?

That's correct.

Yes, it will be. Okay.

Our next question comes from Greg Johnson at Shore Capital.

Just the helpful slide on -- well, mainly on [indiscernible], the helpful slide on energy prices. Would that chart sort of indicate that you'd come next year or come '24, you'll retrace the majority of the '23 increase at current sort of forward prices? And secondly, around cost [indiscernible] energy, clearly, there's a lot of headwinds and inflation faced this year, but also a lot of mitigation measures. Across the group, what do you think you can limit net cost inflation to [ x energy ]? And on the Digital performance at the start of the year, clearly, very encouraging signs at sort of double-digit growth. Were there any sort of benefits in that figure, such as win margin or the sort of return of omnichannel players? Or is it a sort of run rate we should look forward to going forward now that the sort of the Mecca migration is complete and the Stride business is returning to strength?

Why don't I take the last one, leave it you to -- Richard, if you don't mind that, energy and cost inflation. So yes, so we're 12% up but it's only 7 weeks, Greg. Well, good morning, Greg, by the way. We're only 7 weeks in, but we're plus 12%. But Digital is performing pretty well. So we've got a really strong pipeline of stuff that we've got to deliver -- got to deliver. We want to deliver to consumers post the past -- post the migration of Grosvenor -- we're into -- COVID is all complete. And we're into performance testing and dry runs of data migrations and dress rehearsals and all that good stuff for a day in a few weeks' time when we migrate Grosvenor. And then we've got decommissioning to do. And then we are off old nonproprietary systems, and it's brought in-house, which is a big step forward. And of course, what that does is then frees up our development team to focus on the what next activities. And we've already got a lot of the team focused on what we're -- and our road map of activity is coming down the pipeline. So in that sense, we're in a really good position. There's a very good positive spirit. Our expectation for the year is a bit more than the current run rate, actually, but that's our expectation. We've got to deliver it. And ever slip between cup and lip and all that, but the team will recognize that the ambition for growth is significant. That is against quite a tough market backdrop. I mean the Gambling Commission published the minus 25% in Q1 and minus 22% in Q2, but that is against the backdrop of the prior year when venues were closed for much of the year. So the comparisons are difficult. You've got the other moving part of companies may be changing their affordability restrictions later than we did going back in time. So there's lots of moving parts here. Nonetheless, we've got a small share of a big market and we've got the big benefit of having our venues to support our digital business and be able to offer consumers those seamless cross-channel experiences. That's our focus. That's the sweet spot. Our online customers who also play in our venues, they're significantly more valuable, much clearly, much cheaper to recruit and significantly more valuable. And that's the sweet spot. That's the focus. And I made the point about the significant growth in cross-channel revenue in the year, and we expect that to continue into this year. What we're really driving towards is Mecca is getting that unified membership because that, if you like, is the project going back in time that delivered the single account in wallet in Grosvenor, it's the same sort of thing other than we're now doing it on proprietary technology, RIDE platform, so we can deliver single membership for customers regardless of channel, all play all coming back through that RIDE proprietary technology platform. So we're in somewhat of a different place than we were a few years ago. And what was the kind of 7-, 8-year project to deliver a single account and wallet can now be delivered much quicker from Mecca. So lots of exciting stuff coming down the pipeline. We're going to land it. Clearly, we've got to keep growing at least the rate we are. We'd like to be growing faster. But long answer to your question, but there's a lot going on there. It's an exciting point for us.

Taking up the point on energy, so energy costs in FY '22, around GBP [ 3 ] million, Greg. And as we've kind of guided to, they are around GBP 46 million at kind of current market prices, so roughly doubling. Based on -- as we see prices in the market today, that wouldn't fully grow back to the GBP 23 million, actually probably go about halfway between the 2, so somewhere around GBP 35 million to GBP 37 million that said. What wasn't on the chart was kind of the summer prices, obviously, which [indiscernible] that's why you probably read into it that kind of reversion back to last year's prices, whereas the summer impact does have a consequential knock-on for us as well. So around 35 to 37 on current market prices will be my estimate for FY '24. And on [indiscernible] energy, what would be the impact of our [indiscernible] cost inflation after all the [ mitigation ] actions? My estimate at the moment would be around 4% to 5%. And that comes up all the things that we talked about on slide.

[Operator Instructions] And without fail, Ivor Jones from Peel Hunt.

I'm just trying to think about the split of profits between the halves, and I feel a bit like I'm asking you make a weather forecast. But do you consume more energy in the second half than in the first half? Is that going to be a material difference? And then I've had a look at the video of the Merchant City Club in Glasgow, and it looks very nice. You described it as a new concept. Can you talk about that? Particularly because I'm interested to know what you think might roll out across the rest of the estate, what might be working, I know it's early days? In relation to Enracha, it's -- I think I've understood you to say that even though footfall hasn't necessarily recovered gaming machine revenue has, what are the -- the profit has recovered so strongly relative to 2019? What are the lessons for the Mecca business? Is it to do with the location of Enracha and Mecca doesn't get the footfall so we can't look to that? Can you not make the machine changes? You obviously can't introduce sports. Can you not make the machine changes unless the regulations change? Could Mecca bounce back that follows the Enracha pattern? And then leaving the best to last a couple of exciting questions about tax. Your guidance of it for income statement tax. I'm not sure how tax phases with the June year-end. Does that include the planned step up to 25% corporation tax in April for a quarter? Or do you not have to pay that quarter because of the way that tax phasing happens? And should -- if that stays the case, do we expect higher income statement tax in '24? And then on cash tax, you're guiding to a very low rate. If I try and think of the recoverable tax losses as a kind of asset, what's the scale of the losses that you can roll forward that would benefit the cash flow in future years? Or do you think you might use them all up in the current year? So how long does the cash tax stay low? Or what's the value of the losses?

Morning, Ivor. Why don't I take the easy ones? So let me start with Glasgow. So this was a -- this is a great venue. It's right in the heart of Merchant City and which is a real hub. I think we've got, I think, 100 -- something -- I think it's 149 eateries and bars within 3 minutes' walk of Merchant City. It's a fabulous place to be right now at Glasgow. If you're going into Glasgow and saying trying to find what's the best location for casino, I think you'd be struggling to find a bar location in the Merchant city, but it was woefully underinvested. And so yes, so we decided that all the venues that needed a good bit of work on it, this was one. It generates a lot of customer. It's a great late-night venue right now of the city. So what we've done in terms of new [indiscernible] because we've done a few things a little bit differently. We've opened up the frontage more than we open up the frontage of most of our casinos. We've kind of clearer lines of sights into the venue. We've experimented with the front. We've got some of it right and all of it right. We've got a bit more work to do on the front, but it's -- you cannot miss the fact that this is a casino. We're not hiding the fact that this is anything other than a casino. But the lines of sight into the venue are into largely machines and food and beverage. They're not into table gaming. They're into machines and more particularly into food and beverage. And it's got a great bar. It's got a good restaurant. We've got more work to do there in the restaurant, but it's got a really nice restaurant area. And lots of area for people to sit and watch sport. It's got great sports viewing here actually. So when we can offer betting in casinos, we're ready for it in Glasgow, that's for sure. I'd like to go and do that sooner rather than later, of course. So the ground floor is, there's no table gaming. Ground floor is food, beverage, machines. The machines are still stuck, and we've got 2 licenses, and the machines are stuck into these licensed areas, which isn't great because they have -- need access from the street if that makes sense. So we create the street into the casino. So people walk into the casino, which is still the street and then walk into a separate licensed area, which is not where we would like it to be. Obviously, that would get swept away with the change in regulation. We have slightly changed, but [indiscernible] just noticeable different suppliers, which is we have slightly changed the [indiscernible] logo. There is a -- it has been modernized, but we're [indiscernible] kind of territory in that regard, but it is slightly modernized. And we've changed the customer journey into the venue. So we've gone away from anything paper. It's all digital signage and digital signage that makes it clear to you what you are coming into and where you need to go for what these are looking to do [ watch sport ], eat, drink, play roulette, play machines. The ground floor, the basement area, it's down a circular staircase come in what they call, but whatever they're called, circular staircase takes you down to a really nice gaming floor, more machines, roulettes, electronic roulette and table gaming on the first floor. It's also got a really nice poker room, too. And I always think poker players are not looked after well enough in casinos in the U.K. And they are here, we've got a really nice poker. It's a super concept and a super product. Now all of that, we can do -- all of that we can do within the '68 regulations. But clearly, we've done it with a mind to what we'll be able to do post any change that comes through the gambling review. So that's what we've done there. In Enracha, gaming machine offer, I don't think the management team maybe quite recognize the value of gaming machines going back in time, and they clearly do now, and we've got a really good management team focused on not just bingo but also on the gaming machine offer. Every region is different, of course. In Catalonia, the number of arcades is restricted by law. There won't be any more arcades. So this is partly a supply and demand challenge in Catalonia, and true in much of -- there won't be any more gambling venues in the Madrid region because there's a moratorium, and whether that moratorium ever gets lifted? Who knows. So you're playing an environment where supply is restricted to the consumer. And therefore, if we can deliver a much more effective machine offering to the consumer than we're playing to an existing unmet demand. And we are doing it better than a lot of the arcades are. We're providing better facilities, better machine estates and more investment into those facilities than many of our competing arcades provide. And we've got the advance of being able to offer sports betting alongside bingo and alongside electronic bingo and roulette. And so a number of games that we can't introduce unfortunately in the U.K. and comes back to the white [indiscernible] we need a change in regulation in the U.K. We are -- the situation in Mecca is completely crazy where we are only allowed 20% of our machines at B3s. And we've fill our venues. We've got 4,500 machines across the estate in order to provide 14%, 15% of them, up to 20%, actually 20% of them. So 14, 15 per venue of 70 machines in a venue on the machines that account for 79% of our revenue is a crazy position to be in. So we're pushing hard on that. If we could significantly improve the machine offer in Mecca, there is no doubt there is a reasonable upside opportunity for us in the Mecca business. But we've got to get there. But of course, we can't for roulette, electronic roulettes in bingo and we can't offer sports betting in bingo. So there are some restricts and things that we're not pushing for, but just the simple thing like a change in the 80:20 rule would clearly benefit us. But I think also in your question is, is there more we can do with the machine estate in Mecca, and we think there is actually. We started that work before the pandemic. Clearly, the pandemic stopped this. We've been very focused on Grosvenor and investing in the Grosvenor estate since we reopened last May, particularly post the cash receipt. In December, we've been very focused on Grosvenor, but we are now starting to put a limited amount of investment into some frontages on some Mecca properties, some of our key properties, and we're also working on improving the machine offering. Richard?

Okay. So [indiscernible] inflation. So broadly, I think [indiscernible] about 40-60 in terms of first half, second half split of energy cost in kind of normal circumstances. In the year ahead, as I mentioned in the presentation, we've got fixed known prices for the first quarter, and they are at relatively lower levels of inflation compared to what we're going to see in Q2, Q3 and Q4. So the inflation in absolute terms will kind of weigh more towards the second half of the year. And that's where also our high [indiscernible] consumption is. So 2 factors there. And it sounds like you [indiscernible] the higher U.K. corporation tax. The reason that the effective tax rate in '23 is lower than what it was in FY 2022 is 2 reasons. We expect a higher proportion of our revenues to come from Digital, which is in lower tax jurisdictions. And then secondly, there is a phase-in difference between FY '22 and FY '23, whereby some of the distributions that would normally happen in some of those lower tax jurisdictions would have happened in normal circumstances in FY 2022 because it's from internal restructuring work, they will not happen in FY '23. So we'll get a double benefit from some of the digital businesses profits in second half of this year. So hopefully that answered the first question. We can cover that off-line if I missed anything. And then I'll need to come back to you on the exact number of profits that can be carried forward into the current financial year and then beyond [indiscernible] but we'll come back to it offline.

Can I just follow up, John, on what you said about upgrading Mecca and things like Merchant City. Presumably, once -- and I think about Luton Mecca, once you've opened or refurbished the site, it's got a new offer, you must put some marketing money behind it. How long does it take for you to feel that you have told the relevant audience about the changes and got them through the door?

Well, yes, okay. So history here, and I think this probably a little bit different in Luton. History is about 15 weeks, there we are. There's a bit of precision, 15 weeks typically to get a new Mecca venue up to where you would expect the run rate based upon building customer awareness. And Luton has taken us a little bit longer and I think for a few reasons, really. One is all the issues of the -- clearly, the pandemic. And that venue for all sorts of reasons was closed for 3 years, really. So long since forgotten in terms of the routine of going to bingo. So for that reason, I think it's taken us a little bit longer. I think also at the outset, we didn't get the bingo offering quite right, and we didn't get the food and beverage offering and there was a bit too adventurous. And we've -- so we've tightened the food and beverage offer. We've also simplified the bingo offer to the consumer, and we're getting rave reviews. And the numbers are still picking up week by week. We've got a long way to go, but numbers are picking up week-by-week. Team there in Luton [indiscernible] job actually. And it's -- the feedback from customers is terrific. So still lots of learnings. Is that the answer to the land-based bingo challenge? No, but there are lots of earnings to come from what we're doing in Luton. In Grosvenor, actually, when you reopen, you get an immediate bounce and yes, you're getting a bounce, it's settling down in the opposite direction post reopening. So with Merchant City, as soon as we opened, yes, we spent some marketing dollars in Glasgow. But when we opened, we got an immediate bounce, and which we would expect it's what we see elsewhere. And when we refurbished [ Walsall ] recently, an immediate bounce and then it settles back over time, but it settles down over a few months to a year hopefully. And in [indiscernible] of the venues we've refurbished in the last 6 months, [indiscernible] one of them settled down to a much higher run rate than where we were before we started. The other one broadly settled back to where it was. So a bit of work to do there. But broadly speaking, Mecca is about 15 weeks. Grosvenor is an immediate bounce.

There are no more questions this morning, John and Richard. So John, back to you for any closing comments.

Alex, many thanks for your help, and many thanks, everyone, for joining us this morning. And hopefully, when we come together for the interims, we will be coming together for the interims and it will be in person and there won't be any COVID or train strikes or anything else to stop us. But -- so apologies we're virtual this morning. But many thanks for taking the time to join us. Many thanks. Have a good day, everyone.

Thanks, all.

Thanks, John. Thanks, Richard. Have a good day. Bye-bye.