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

Great. Good morning, everybody. Good morning. I'm John O'Reilly, Rank Group's rather croaky this morning CEO. So apologies for that in advance. Delighted to welcome you to the Group's results presentation for the 6 months to 31st December '22. Great to be doing this back face-to-face. It's the first time since January 2020. But many thanks for taking the time to join us this morning. Many thanks too for those of you joining us online. Very welcome. I'm going to provide a summary of the group's first half performance. Rich Harris, Rank Group's CFO, will then run through the half year numbers in a bit more detail and provide some guidance for the second half. I'll then provide a quick update on the transformation program, the delivery of our key strategic initiatives, including the progress we're making with our ESG agenda and where we might be with a vitally important government review of U.K. gambling legislation and regulation. For our U.K. venues businesses, Grosvenor and Mecca, it's been a tough first half. The Grosvenor business was flying performance-wise before the pandemic and before lockdown. And given the very significant contribution it makes when performance is strong, the group was heading towards an operating profit of over GBP 120 million when locked down struck in March 2020. Both Grosvenor and Mecca have been slow to recover from the pandemic, plus, of course, the impact of the tighten jobs market, high wage inflation, a huge increase in energy costs, general cost inflation and the economic squeeze on the consumer caused by much of the above. Our focus is to get these businesses back to where they were in terms of profitability before the pandemic. Conversely, our digital business continues to perform very strongly with good growth in revenues and result in significant growth in profitability. However, given the pressures on our U.K. venues businesses Ranks underlying like-for-like profitability in Half 1 was GBP 4.2 million, and that's down from GBP 24.9 million in Half 1 last year. And the sharp fall in profitability was wholly within the Grosvenor business, which has been very heavily impacted by the huge increase in energy costs and significant wage increases for our colleagues alongside softer-than-expected revenues. Now I've mentioned the good growth in the digital business. And here, we are really benefiting from the movement of the Rank brands onto our proprietary technology platform, which we call RIDE, which we acquired through the Stride acquisition back in late 2019. And we've got a strong balance sheet, which is enabling us to continue to invest in our strategic priorities through the transformation program. And whilst it's been a tough half, we're seeing good trading across all businesses over Christmas and New Year, which has created good momentum going into the second half of the year. Getting into a little more detail, I'll start with Grosvenor, the Grosvenor Casinos business, the health of which is obviously key to the overall performance of the group. In half 1, like-for-like revenue was down 5% on the first half of last year at GBP 153.4 million. But more positively, revenue was up 15% on the second half of last year, which I see as the a dear period for the Grosvenor business. And you can see on the chart the quarter-on-quarter revenues since reopening. And I'll remind you, we reopened in England in May 2021, and it was a bit later in Scotland and Wales. So I kind of view Q1 FY '22 July to September 21 as the first real kind of quarter post the pandemic. In Q2 and into Q3, particularly Q3 last year were hit by Omicron. We had seen only a very slow return on Middle Eastern customers back into London and Far Eastern customers who've not been traveling. Working from home in major cities continues to impact after work trade. General economic pressures on the consumer continues to grow, and we've also had a tightening of regulation, particularly around ensuring that customers can afford their level of expenditure, and all these factors have weighed heavily. In Q4 last year, where average weekly revenues were down at just GBP 5.1 million per week. Revenue was hit by very few international customers coming into London and more significantly, the full impact of affordability restrictions affecting customers who can well afford to play at their level of play, but we're not or are not prepared to put up with a high level of personal intrusion. And we've vastly improved and management of customer risk across the Grosvenor estate, just as we've done across the digital business through investment in technology, in processes and in the capabilities of our colleagues to deliver positive interactions with our customers early in the customer's life cycle and before those interactions become negative interventions. Average weekly revenue grew 14% in Q1 on the prior quarter, Q4, but the growth rate slowed in Q2. And that was partly the impact of the World Cup I think, which is positive for some avenues. I mean, no better place to watch a football match than many of our casinos, but it also keeps players off the tables. And the cold snap in December, which coincided with the World Cup produced 2 very soft weeks. Performance across the Grosvenor estate has been quite variable in the half, with my summary being that our recently invested properties have been our strongest performers. We continue to invest in our properties with refurbishments completed to the Bayswater Casino in Queensway, Merchant City in Glasgow, further improvements to Pier 9 in Brighton and a complete refurbishment to our Gloucester Road casino, which will complete in the next few weeks. Looks marvelous too. We've also been continuing to invest in our systems, our products and very importantly, in our people. We're a hospitality business and our 3,600 colleagues across the Grosvenor estate create the experience, the fun, the entertainment for our customers. We entered the first half with acute staffing issues, but the position is now much better, having gradually improved at the half as attrition rates dropped and applications have risen. Clearly, investing in our people is helping retention as well as attracting higher volumes of quality applicants. And we have strong career paths for our colleagues with our gaming academies operating at full speed up and down the country, training tomorrow skilled and licensed groupers. The significantly higher energy costs and wage costs resulted in underlying like-for-like operating profit down from GBP 29.8 million to GBP 4.3 million this year. And this includes a reapportionment of costs previously categorized as central costs on which Richard will provide a fuller explanation in a moment. With 51 casinos, 3,600 colleagues and 24-hour opening, Grosvenor is a business with a high operating leverage. As we get revenues growing, the conversion rate of profit is high, and that is our very clear priority. And on that note, we had a very strong Christmas and New Year trading period. Revenue in the 10 days from the 24th of December to the 2nd of January was up 19% on last year and we have lots of activity to drive revenue underway and in the pipeline for the second half. The bingo sector was weak before the pandemic and the step-down in visits and customers, particularly amongst the older cohort of customers has taken its toll on the sector. Mecca's like-for-like net gaming revenue was GBP 65.5 million was up 4% and on half 1 FY '22, but that still leaves it 20% behind pre-pandemic 2019 levels, and we're confident that we've been making market share gains. Our NGR growth continues to slowly improve period-on-period, but as the chart shows, it stepped back in December as the cold weather snap have really hit bingo tenancy, snow and ice is not good for bingo, I can tell you that. Visits in half 1 were up 4% against last year, but that's a decline of 28% on pre-pandemic levels back in 2019. And we are seeing strong volumes of new customers, but the visit frequency of new younger bingo players just isn't sufficient to offset the decline we've seen amongst the older cohort. Bingo is growing, which is positive, but from a much lower base, and that cannot sustain the number of venues across the sector. Consequently, the land-based bingo set is under considerable pressure, and that reflects in Mecca's half 1 like-for-like operating loss of GBP 4.9 million, which compares with an operating loss of GBP 4 million in the prior year. And again, both after the reapportionment of costs previously categorized as central costs. We closed 7 Mecca venues in the period, taking the estate down to 64%, and we've announced the closure of further 8 venues in the coming weeks, taking the estate down to 56 venues. And nevertheless, I would say despite the sharp increase in energy costs and wage inflation, 25 Mecca venues grew profitability in the half. And bingo, as you know, it's a liquidity game. The bigger the game, the bigger the prices, the bigger the prize is, the bigger the audience. And of course, it works the same in reverse, unfortunately. So the stronger venues benefit from weakness amongst their local competitors. We've seen -- we've been managing our lease portfolio very carefully over what many years to give us the flexibility we need as trading conditions deteriorate for some of our smaller attendance venues. Our focus is on concentrating on our profitable venues giving great value and service to our customers and seeking to ensure that we can sustain as many of these very important social amenities within the local communities in which we operate. And like casinos, land-based bingo needs regulatory change through the government's gambling review and to better meet the needs of today's consumer. And I'll say a bit more about that later on, but we're hopeful of some movement in the coming weeks. Our Enracha business, which is 9, Spanish bingo and gaming machine venues has recovered very strongly from the pandemic. Half 1 like-for-like revenues of GBP 17.7 million, up 25% on last year and actually up 11% on Half 1 FY '20, i.e., before the impact of the pandemic and the long periods of lockdowns we had in Spain, restrictions on opening hours, restrictions on capacity in the venues and other restrictions on food and all sorts of things. Customer visits are still down 14% on pre-pandemic levels, but they're continuing to improve against last year. Visits were up 16% in the half. So you can see the shape of that improvement curve. Bingo revenues are now just 1% behind where they were prior to pandemic but gaming machine is an area of the business in which we've been heavily focused on investing have seen revenues grow 39% in the half and up a very similar level to that against 2019. The underlying like-for-like operating profit of GBP 3.9 million is up 18% on last year despite the impact of higher energy costs. It's a super and very well-managed business with flagship locations in the cities and towns in which we operate. In the digital business, we have continued to make good progress across technology, revenue growth and operating profit growth. Many of our competitors reported challenging conditions in the U.K. as affordability constraints have hurt revenues, but we've been well ahead of that curve and also now have the very significant benefit of proprietary technology underpinning our brands. Half 1 like-for-like revenue of GBP 100.8 million was up 9% on the prior year and the operating leverage in the digital business resulted in an underlying profit of GBP 9.9 million or GBP 7.4 million after the central cost allocation and well ahead of last year. In September, the Grosvenor brand successfully migrated onto the right technology platform we secured in the acquisition of the Stride Gaming business, and that completes the program with all ranked brands now successfully migrated. And the development teams are now focusing on delivering new cross-channel products and services, greater personalization for the customer, improvements to customer journeys, and strengthening the platform and our database capabilities, particularly in terms of using real-time data to deliver great experiences for our customers. That work also supports our safer gambling focus. And as our customer affordability journeys continue to improve, consistent with the Grosvenor venues business, we're removing friction for those customers who are playing well within their means and do not welcome a negative intervention. Very importantly, we're delivering revenue growth across each of our digital businesses. In Spain, we grew 9%, helped by the successful launch of YoSports in September. And Passion Gaming, the Indian rummy business in which we have a 51% shareholding grew 68% in the half, and that was primarily down to removal of some restrictions in some states and an increase in -- corresponding increase in marketing investments. We spent 3 years reaching a position with our digital business and technology from which we can now really push on and drive growth. To bring this to life for everyone, analysts and investors and to showcase what we're doing, we'll be organizing an event later in the year away from results presentations and more details on that to follow. Now over to Richard if I may to take you through the financial numbers.

Thank you, John, and good morning, everybody. I'm going to start by walking you through the key financial points for the first half. So top left-hand side here. Overall, like-for-like net gaming revenue was GBP 337.4 million, up 2%, as John mentioned. And within this, the digital business grew 9% and venues businesses declined by 1%. And whilst revenue improved quarter-on-quarter in the first half, it did remain below our expectations, and this then fed into the lower operating profits. Underlying like-for-like operating profit was GBP 4.2 million, compared with a profit of GBP 24.9 million last year, and I've got a slide that will take you through the moving parts of that in a moment. The lower profits pushed underlying EPS to a loss of GBP 0.8p per share versus a positive GBP 2.8p per share in the first half of last year. Net free cash flow was an outflow of GBP 5.7 million. And again, I'll take you through the various inflows and outflows on a later slide. The prior year position on net cash flow benefited from the VAT receipt. Finally, we ended the year with a net cash balance excluding leases of GBP 10.9 million, and this cash balance continues to provide us with the protection against the uncertain macroeconomic and trading environment and has also allowed us to continue to invest in the first half and positions us well for when the trading conditions continue to normalize. Overall, the post pandemic recovery in the venues business has been slower than anticipated, and this, along with inflationary increases in key cost lines has impacted pressure -- sorry, impacted first half profitability. And that point is best evidenced by the following chart, I think, which shows a year-on-year movement. Revenue growth of 2% contributes an additional GBP 1.3 million to first half profit and that takes into account the associated taxes and duties as well as direct cost of sales. Salaries and wages were up GBP 10.5 million with average increases of 8% across the group. Energy costs are up 44% or GBP 4.5 million in the first half to GBP 14.7 million, and this was with the benefit of the government support scheme for businesses in the second quarter. We'll come back to energy costs in terms of our forward projections later in the slides. The prior year benefited from GBP 4.9 million of COVID-related support, which has not been repeated in the first half so that's things like furlough income, rates relief, et cetera, and other costs are up GBP 2.1 million with inflationary pressures across the board. So overall, like-for-like underlying profit declined to GBP 4.2 million. And looking at how that makeup of profit as reported, we have made a change this year, as John mentioned earlier. Historically, the group has managed a number of cost categories centrally on behalf of the business units particularly the U.K. venue businesses, but also in part of the digital business. In the first half, we've conducted a review of these costs centrally managed and concluded that it's more appropriate to allocate a significant portion to the business units that benefited from the services provided. For the full financial year 2023, we expect these centrally managed costs to total GBP 35 million, of which approximately GBP 24 million, so 2/3s are related to services that provided to the business units. There are GBP 11 million costs in the full year that will continue to be reported centrally, and they include costs of the Board, company secretary, Investor Relations, Group Finance and our head office in Maidenhead, amongst others. Specifically looking at the first half, total central costs were GBP 19.5 million, and GBP 13 million of these have been allocated out to the businesses, leaving GBP 6.5 million in the center. We've reported performance in the first half on the old basis and on the updated basis in the interim statement and we'll do this again at the year-end before fully transitioning to the new basis of reporting thereafter. For full transparency, we've included quite a few details on the allocation in the interim statement. Having been through the allocation process, the aim is ultimately to increase the focus on these costs and drive efficiencies where we can. So each of our managing directors is now fully accountable for all of the costs in our P&L from top to bottom. Okay. Having been through the drivers of like-for-like profitability. This chart walks you through the full income statement in a bit of detail. And I'm just going to pull your attention to a few items. There's a GBP 1 million charge relating to the reopening of 1 Mecca Club in Luton and 1 closure in Grosvenor and the closure of 7 Mecca clubs in the first half. We are focused on actively managing the macro state to improve the overall profitability of that business. The first half saw a net financing charge of GBP 6 million, of which GBP 2.8 million is net external interest payable and GBP 3.2 million related to lease liabilities. Separately disclosed items total a very significant GBP 104 million, the vast majority of which is noncash, and I'll take you through that in a breakdown on the next slide. Finally, on tax, the underlying effective tax charge was GBP 1.1 million, driven by overseas profits, and there was a tax credit on separately disclosed items of GBP 7 million. So here, you can see the breakdown of separately disclosed items, which were significant in the first half for several reasons. The largest component part is impairment charges, which totaled GBP 95.4 million and that splits GBP 52.3 million in Mecca, GBP 43.1 million in Grosvenor. The main driver of the impairment is the rebating of the forecasts for current and future years. We've taken a more cautious approach to our internal forecast and this has inevitably had an impact on the cash flows of the individual clubs that are expected. The wage rate also increased in the period, but that was a relatively small proportion of the total impairment charge. Costs associated with the closure of venues is at GBP 7.3 million in the first half, and these are mainly associated with Mecca closures and 1 Grosvenor Casino in the first half. Amortization of GBP 4.4 million relates primarily to the acquisition of the Stride Gaming and the YoBingo brand in previous years. The charge is reducing year-over-year due to some of the assets now being fully amortized. There are a number of smaller items that we won't go through but are listed on the slide just for completeness. Overall, separately disclosed items were GBP 104.2 million, and you can see again the tax credit of GBP 7 million against these losses. So moving on to cash flow. You can see here a bridge from operating profit through to net free cash flow and ultimately through to our closing net cash position. The net outflow in the period was GBP 5.7 million driven by the lower-than-expected profits in the first half. Principal lease payments were GBP 20 million, and the full year outflow would be broadly double that. Working capital inflow in the period was GBP 16 million, and the majority of this will unwind in the second half of the year. Tax and interest at GBP 10 million includes a tax cash charge of GBP 2.5 million and net external interest of GBP 4.3 million. Capital expenditure in the period was GBP 24.2 million, and this related to the refurbishment of casinos, investment in new electronic terminals, gaming machines and tables, and we also continued our investment in the development and enhancement of our digital platforms. The cash outflows on separately disclosed items were GBP 2.6 million. And all of that feeds through on the right-hand side to a closing net cash position of GBP 10.9 million at the end of the half. So this slide gives a brief overview of our current liquidity position. We ended the year with total cash and facilities of GBP 148 million, which is a strong financial position to be in at this stage and has enabled us to continue our investment in the business as I outlined a moment ago. You can see from the debt maturity profile on the right-hand side that we have some of our facilities maturing over the next 18 months, and we will also be repaying the final tranches of the term loan in the same time frame. So with this in mind, we plan to commence the refinancing of the business in the second half to ensure we retain good liquidity, and we'll update on progress on this later in the year. Finally, to confirm, we expect to remain well within the few covenant limits that are in place across both the facilities and the term loan. The last slide in my section summarizes our key financial guidance. So total CapEx for the year will be around GBP 40 million, with further spend on the upgrading of our venues businesses and the enhancement of our digital platform. And John will talk to our H2 initiatives on that shortly. Energy costs for FY '23 are now expected to be GBP 31 million, and that's on like-for-like volumes. This reflects the lower energy prices seen in the market currently. Just for context, that number has been as high as GBP 60 million at various different points in the year and sometimes beyond for a very small period. So a significant reduction from where we had been. And to that point, over the last few weeks, we've sought to lock in the impact of the lower prices for the balance of this year. Our energy consumption for the third quarter is 100% hedged and benefiting from the government support scheme in bid for businesses. We've also now hedged 75% of our fourth quarter consumption. So we've got a good level of certainty for the remainder of this financial year on our energy costs. Going forward, we've taken a more proactive approach to managing energy consumption and energy costs. With 20% of our electricity consumption for next year is hedged and that relates directly to a PPA contract that starts in October 2023. We also have a small proportion of our gas consumption that's hedged for FY '24. Based on current market prices, we expect our energy costs in FY '24 to be GBP 26 million. and we'll continue to build our hedge position as we go through the next few months. There are some restraints on liquidity in the market at the moment, and that does drive some additional premium to the market price, but we'll manage through that, and we'll continue to build that hedge. As part of our updated electricity supply agreement, we now source all of our electricity volume from renewable sources. So a good step forward there. Finally, just to summarize, as you know, we announced revised like-for-like underlying profit guidance of GBP 10 million to GBP 20 million on the 16th of December, and that remains unchanged today. They're the key ones from me. Happy to answer any questions after the session. But in the meantime, I'll now hand back to John for the strategic update and outlook.

Thank you, Richard. Right. The group strategy is delivered through the transformation program, as you know, and that framework ensures our key initiatives are properly prioritized. They're resourced tightly monitored and they progress through to delivery. And actually this is a shot of 1 of the bars at Merchant City, which is the best casino in Glasgow, which received a significant investment to improve the facilities, products and proposition. And if you were looking to locate a casino in Glasgow, this is where you should put it, I should add. And it's now a fabulous property, and it's got a fabulous team. I just want the initiatives delivered in the half and a sample of the Half 1 initiatives from the transformation program is included in the slide deck at the back. And here are the highlights of what we're planning in Half 2, what is going to get delivered. In Grosvenor, we are commencing upgrading the external appearance of 10 prominent casinos, and we also have 2 refurbishment projects to complete. We've been trialing a new progressive jackpot electronic roulette game, which will roll out to all venues with huge multisite jackpots up for grabs, which leverages the scale of the Grosvenor estate. And we're continuing with the program of lapsed customer reactivations, which is delivering good success for us. In Mecca, we're making investments to the external appearance of further 4 venues we're rolling out a new fixed-odds bingo game and a progressive jackpot interval game, and we're continuing a program of modernizing our gaming machine offering, enhancing layouts and improving the product offering. In Enracha, we are hoping, subject to planning to be on site with 2 further refurbishments with a particular focus on the gaming machine offering there at Sabadell in Catalonia and in Seville. We're completing the rollout of our loyalty program with player tracking and with ticketing ticket out and rewards for customers, plus further gaming machine enhancements, including some amazing jackpot displays that we've started to put into the Enracha estate. Within the cross-channel work stream, we've been expanding live streaming from our Grosvenor venues and that continues in the half. And that's increasing live streaming from our venues in to our online customers and also introducing a new studio live streaming service. We're rolling out the joint liquidity game Fortune across the Mecca estate and online with improved functionality and community jackpots. And we're beginning the development of unified membership for Mecca customers on the RIDE platform. Also in digital, now the hard work has been largely done. We're moving the right platform on to the cloud to increase scalability and deliver further efficiencies. We're launching new apps for Mecca and Grosvenor, and we're introducing additional gaming personalization journeys amongst the whole after developments, which reflect the completion of the migration onto the RIDE platform. The work stream to improve organization capability continues to receive a considerable management focus with second half initiatives, including enhanced workforce planning capabilities for the Grosvenor business, which optimizes table openings and minimum chip sizes, further investment in our Cape Town technology hub and our operational support hub in Mauritius to deliver both stronger capabilities and efficiencies and the rollout of the group's new employee value proposition. And that's just a kind of sample of what's happening within the business to restore the group to the trajectory we were on before the pandemic hit. And here is an outline of the progress that we're making specifically within the ESG transformation work stream. In terms of the customer, we've made a number of improvements to the management and customer risk across the Grosvenor business, amongst those, over 850 Grosvenor colleagues have completed face-to-face training programs to deliver customer -- or improved customer interaction skills. And we've developed and are currently trying a safer gambling app to support colleagues in both delivering and capturing timely information from customer interactions. We're a good way through rolling out a system called Playsafe across the Mecca gaming estate, which provides stronger real-time customer monitoring and we've developed a new markers of harm model within the digital business. Within the colleague work stream, we continue to focus heavily on engagement scores across the estate and digital business, and we've seen good improvement in engagement levels and in our NPS scores in our most recent employee opinion survey. In terms of the environment, we're midway through the rollout of LED lighting across the Mecca and Grosvenor estate. The program will complete in the second half of the year. All of electricity, as Richard mentioned, is now sourced from renewables, although electricity, I should say, rather, energy is now sourced from renewables and our power purchase agreement commenced in October. From a community perspective, another busy half with colleagues across the group working hard to raise money for Carers Trust and Mecca colleagues contributed to the preparation of literally thousands, I can tell you, of Christmas hampers in what was another huge successful. Everyone deserves a Christmas campaign. And there's been a whole host of other local community courses that our teams have been supporting with amazing energy and commitment up down the country. Perhaps a little more strategically, we've been focusing on determining our ESG KPIs and ensuring we have the metrics in place, but we're now beginning to set out our key ESG targets for the group, which we intend publishing at the year-end. Now everyone is well aware of the delays the U.K. government's review of gambling legislation and regulation. The draw paper was very close to being published when the then Prime Minister Boris Johnson resigned last July. Ultimately, publication didn't happen, of course, and we now have a new ministerial team who picked up the review with the intention of seeing it through to its conclusion. And from our perspective, that conclusion just can't come soon enough. And here, just by way of reminder, the key regulatory changes sought by land-based casinos and bingo most importantly, harmonization of the 2005 Act experiment in casinos with those casinos regulated under the 1968 Act, which would enable up to 80 gaming machines in U.K. casinos from the current restriction of 20 machines per license. Similarly, the opportunity to offer sports betting, which applies to the 2005 Act casinos. We want to be able to offer a broader range of table games like blackjack and other games on electronic terminals. So to provide lower staking opportunities for customers. And plus, we'd like to see the removal of the unnecessary restrictions on electronic payments for gaming in our casinos and in our bingo venues too. In bingo, we're hoping to see the removal of what has become an increasingly outdated 80-20 rule which restricts bingo in a venue to no more than 20% of the number of machines being the B3 variety, which accounts for the best part of 80% of our revenues. And we'd also like the opportunity to provide side games on the main stage bingo game to provide customers with more chances to win. The white paper is again close. This morning, DCMS questions started after prayers in the house. And I haven't checked so far, but I don't think there's anything come through so far. So nothing so far. But we do expect -- I do expect publication in the coming weeks, and then we need good progress with secretary legislation to make some very positive changes for land-based gaming in the U.K. and changes which are not politically sensitive and which have broad parliamentary support. So just a few words on current trading and the outlook. We've had, as I've said, a strong period of trading across Christmas and the New Year, and that's provided good momentum going into the second half of the year. However, we're conscious that cost of living pressures will likely continue to bite on our U.K. venues customers over the coming months. Digital business in a particularly good spot, and we expect strong growth in Half 2. Balance sheet remains in a healthy position and with plenty of investment opportunities to drive growth and in preparation for the regulatory reform from the government's gambling review when it comes. There were lots of opportunities for us, but I'm cognizant of the pressures on the consumer. And as a result, as Richard said, we're maintaining our year-end like-for-like operating guidance of between GBP 10 million and GBP 20 million for the year to the end of June '23. It's been a tough first half, but the good news, to my mind, is we're the market leaders in what we do. Tough market conditions are tough, but they hit our competitors harder than they hit us in truth. The consumer business has significant operating leverage, which drives profitability as the market improves. We have the ability to invest, and we have a digital business in increasingly good shape. I'm also lucky to have a very talented team that's committed to maximize the opportunities open to us. And we've had a lot thrown at us. We maybe not through it all yet, of course, but we're very well placed to bounce back. Right, to questions. And we're going to take questions from the room first, I think. And so I have a firsthand. If you have a question, raise your hand like ours, we'll get a mic to you. And for those online, if either you wouldn't mind letting them know who you are. So everyone knows who the question is from. And for those -- if you're joining us online, you'd like to ask a question. You can type up the question into the Q&A box, and we will pick up any questions at the end after we've had the question in the room, we pick up any questions we've not answered from those that are coming online.

Ivor Jones from Peel Hunt. I wanted to ask about CapEx to get a sense of what's going to pay off in the future. So the total was about GBP 24.5 million. I think in the statement, you only called out about GBP 7 million in Grosvenor and then you said it's maintenance only in Mecca. So where did the rest go so we can think about the payback? And as a subset of that, the GBP 3.5 million that went into new gaming machines, wheels, et cetera, in Grosvenor. Can you talk about the payback on that because you've been doing it for some time. So can you talk about the positive consequences you get from that specific bit of CapEx. And then the final thing I wanted to ask was, obviously, there are ebbs and flows in the Grosvenor business with seasonality and the flows of international customers. So it's been phenomenal trading since Christmas. But when do foreign visitors come, when do they come and spend significant money? How does weather affect growth? And how should we think about the balance of this half and into next year, so that when you're next communicate, and we know what the comp is like?

Why don't I take the last of those. And then if you pick up CapEx, Rich, if you wouldn't mind. So let me start in reverse. So travel back into London, particularly, but it extends beyond London, but it's particularly a London phenomenon has been clearly slower than we would have liked. And we had, in the end, a not bad summer, but well behind where we would historically have been. Christmas was much improved, still behind where we've been but you can track the number of customers coming into Heathrow and where they're flying from and Middle Eastern customers are back, not at the number that was the case pre-pandemic, but nonetheless, Middle Eastern customers are now traveling back into London. And interestingly, we had a lot of customers from Qatar who are escaping the World Cup beside they want to be here rather than in Qatar, they want to be in Doha for the World Cup, they'd rather be in London. So that was helpful. Far Eastern customers and you would have seen this have just started to travel and so we are starting to see the return of Far Eastern customers. But it's early days still for Far Eastern customers to be traveling. But I'm hopeful of a positive pickup as we progress beyond Easter and into the summer months. I think we're going to have a much more positive summer coming up.

Yes. So the CapEx of GBP 24 million also includes spend on things like investment in our digital platform. So we transitioned across to the RIDE platform in Grosvenor in the first half, and we've got quite a lot of investment in development resource that goes into improving the platform. So that would be 1 component part. And you can see that in terms of the performance, the growth of 9% has been supported by that investment in development resource. You've mentioned the investment in the property sites, gaming machines, terminals, et cetera. And in addition, we have got some maintenance spend, we've got investment in areas, things like energy efficiency, which will start to pay off in the second half of the financial year. So in terms of what's the investment that we've made in the first half, the ones in the venues, the venues that have been invested and are clearly performing better than the rest. It's -- if I think about the Bayswater Casino is a great example where we've had a really good start with that one, but we continue to expect that to improve over the next 12 months or so. And equally, Gloucester Road venue launch in the second half of the year, there'll be long-term benefits coming from that as well. So it is -- there's quite a lot of investment there in things that are going to drive improved performance in the long run, whether that be on the digital side or the venue side. There are actually some improvements in Barracuda as well. So some investment in technology, the Mecca Max Tablets, et cetera, and some maintenance spend, as I mentioned.

Is the majority -- sorry, is the majority of the GBP 24 million in Grosvenor?

Just under half is in Grosvenor.

And then digital and in Mecca, too. Yes.

David Brown, Goodbody. Three questions, 2 in venues, 1 on the white paper. Firstly, that decline in spend per visit that you talked about in Grosvenor. Is there any noticeable difference between London and the regions and that? And secondly, on the affordability checks. Can you just give us flavor in terms of what these checks are and how they are implemented across the venues business? And then finally, on the white paper, the changes that are being sought in the U.K., can these all be achieved through secondary legislation and if so, what's the likely time line before we start seeing that coming through the numbers?

Decline in spend per visit pretty much across the board, I would say, and linked actually to affordability checks inevitably and affordability checks. And when you -- the extreme end of it, which is documentary evidence of source of income and source of funds clearly is something that applies to the highest spender. So yes, it's inevitable, I think, that those spend per visit rates declined in line with affordability checks increasing. We came out of the pandemic and introduced ID scanning in all of our venues. So we know who is in our venue, when they're there. So we don't have an open door policy across the estate. And we introduced an affordability model across our business. We were trialing it at the point of reopening actually, and we then introduced it across the estate in November of last year. And I think the impact of that was most seen through the second half of last year. And I think you can see that from the chart actually that the -- there were other factors in the -- going into Q4, particularly in regards Middle Eastern travel was at a very low point actually in the year at that point last year. But I think affordability checks have clearly had an impact. And we saw this going back in time with the digital business, too, you have to get through it and you have to improve the skills of delivery and you have to improve the processes. And all these things, you -- when you implement them, you are consistently finding ways of honing and improving what you do. And in the extreme case of the Stride business when we put in a number of measures to bring that business into compliance back in 2020, we saw that business decline from annualized revenue of GBP 23 million down to an annualized revenue of GBP 8 million. And you've seen from the numbers today, how that business has been successfully regrown as a consequence, even with those tougher compliance measures in place, and I think much the same is happening with the Grosvenor business. And we're through the difficult [indiscernible] and are now improving the skills of our colleagues, the processes, in particular, the quality of real-time information we're giving our colleagues, and we're just helping them manage those situations. And turning what are otherwise quite negative interventions with a customer into a positive interaction. So gradually, gradually, gradually improving and coming out the other side. Having spent much of Christmas and New Year, I think I've been to 15 or 16 casinos over that time. You can visibly see the skill levels improving and the confidence of our colleagues and that's an important thing. You introduce something new across 3,600 people. However, well, it's implemented, you're never going to do it quite as well as you'd like to. So I think we're now seeing the positive momentum coming back into the business. And will it recover spend per head or spend per visit to the levels that we were seeing pre-pandemic. I don't know. We'll have to wait and see, but so -- but I think we will see those gradually improve. And the secondary legislation point. Look, I think the answer to this is none of us can know we are -- I am hopeful that the government recognize and certainly the minister recognizes that the white paper is a part of the journey and thereafter there's then a need for the implementation phase. No doubt there will be elements of the white paper that will require further consultation. But I mean, I'd ask that we have been discussing this for a very, very long time. There aren't too many more words that can be spoken on some of these items, not too much to consult and I'm hopeful that a number of these measures can be implemented by government and indeed by the Gambling Commission fairly quickly. So there are some measures that we've described here, which will require -- which may require primary legislation that's partly in the hands of the team at DCMS and their legal advice some -- but much of it can be delivered through secondary legislation. And the most important of all for the casino sector is machine harmonization, which can be delivered through secondary legislation. So it could happen quickly, but it requires the will of government to deliver it. But much needed, David, much, much needed.

So from the online audience, Richard, to you first. Please, can you discuss if there are any cost synergies to still be realized from full switch over to the RIDE platform? And secondly, wages increased 8% in the first half. Will you need to increase wages by a further 10% in April when the national living wage increases again? Or are you now paying in excess of that April level?

Yes. So taking the cost synergies. So there are some synergies that unwind in the remainder of this year and then a very small amount -- residual amount that will come in the first half of next year just because we had about 3 to 4 months' worth of spend on some of the development resource that was handed over from the big platform to the right platform with Grosvenor. So there'll be low single-digit millions left to come. And on the wage inflation side, minimum wage going up by 9.7% from April, which has been factored into our operating profit guidance for the current year. Our expectation is that we will have to increase certainly at the lower end of the pay scale will have to increase by broadly that amount. So in some cases, we are at minimum wage level, in some cases, we were slightly above but broadly, we would expect to have to increase by around that 10% at the lower end of our pay rates.

Excellent and for John. Encouraging comments regarding Christmas and current trading. Interested in your thoughts on why the pickup over Christmas? And how has that continued into January?

Well, so I kind of think it was good to go out and see venues I saw lots of venues over Christmas and New Year and it's great to see people are having fun and enjoying themselves. And I think people recognize they didn't have Christmas for a couple of years and wants to go out and have some fun. And it was very much. We were really busy and that has continued into January. To date, we've had a good run in January, and let's hope it continues. I mean, clearly recognize there are pressures on the consumer. And so in some cases, those pressure are going to increase from where they are today and with interest rates and so on. But look, I think people have -- people want experiences, and we're delivering great exciting and fun experiences to people in our venues. And particularly in the Grosvenor estate, where we have invested, it magnifies the quality of that experience for customers, and you can visibly see it. So I think that will continue.

Turning to Mecca, great to see some top line growth, albeit small. Can this be sustained despite a rationalization to 56 venues as you currently plan?

I think I probably made the point here, which is that the stronger venues are performing strongly and the weaker venues for reasons liquidity, when visits across the border down at the level they are compared to pre-pandemic. The weaker venues become weaker quite quickly, and that's the liquidity challenge in bingo. And there are too many bingo venues in the U.K. And we're in a strong position, and I reflect that in our market share, our market share exceeds the our share of venues. And so we've got typically stronger, bigger, better venues with stronger liquidity. And we've been very much focused on delivering good value to our customers with big price boards and running probably -- I mean, the very affordable bingo, we're running at January sale currently, which is half price bingo Monday through Thursday, which has been hugely popular with customers and so popular. We'll continue that -- much of that through into February uncertain days of the week and sessions of the week. So we're seeing in our stronger venues, we're seeing strong performance. In our weaker venues, it's much, much tougher and that reflects the broader sector. So we do need change in the white paper. These are really important community assets and I was reading that piece by Daniel Finkelstein in The Times yesterday about what makes us happy in life. And human connection is the thing that makes us most happy. And for a lot of our customers, their human connection in the week is their visit to Mecca. So our responsibility and our job is to ensure we maintain as many of these venues as we possibly can, and that's certainly our target.

Looking at Luton, that's the only casino operating under the 2005 license. How much more profitable is Luton versus a similar casino that operates under the more restricted 1968 license?

There so many factors that determine our property's profitability then it's difficult to say. I don't think you can comment in that way. But if you visit Luton, the 2005 Act got some things wrong and that reflects in Luton. And the government, DCMS are well aware of the things that need to change from the license condition of the 2005 Act and you can visibly see that from the Luton property. But it's a super, super property performing very strongly. Just had a brand-new sportsbook facility put in there. And it was jumping during the World Cup. It was also jumping for the Eubank fight at the weekend, it's a great place to go and watch sport, I can tell you that. And with a little bit more money spend, we are looking at improving the poker facilities in Luton over the coming months. So more work to do in Luton.

And lastly, from the online audience. The switch to the central cost -- sorry, from central cost to the specific divisions, what's been the response from your divisional CEOs? And how incentivized are they to focus on reducing or leveraging that new cost base going forward?

I think it's fair to say, mixed response in the sense of that nobody wants additional cost added into their profitability. So they see it as a personal reflection on their performance, a mixed response. But at the same time, it does drive the right change in behavior, I think, whereby -- where they have got that full P&L responsibility and an additional focus to make sure they're getting true value for money out of those services. So I think it's the right thing to do. It gives us a better reflection of the true underlying profitability of the businesses and in the medium term should help to drive back some costs from those areas.

Any more questions?

Ivor Jones from Peel Hunt. I never like to draw attention to myself if there is space to ask you some more questions. You said at the beginning that you'd like to get back to the GBP 120 million that you might -- the GBP 120 million of profit that you might have made. Is that sort of an aspiration in the distance? Or is that something you think that you're planning to awards based on the business you've got at the moment? The second thing is back to that point about central cost allocation. Now Mecca has got more cost. If Mecca site numbers were to shrink further, does that additional Mecca operating costs shrink along with site numbers? Or has it got a very difficult target to make in order to get the material profitability? And then on digital, John, you went through it in detail in your part of the presentation, but could you give us a sense of how much all of that strategic development in digital has still got to pay off because you talked about having made the transition, but I think you're saying that all the benefits of that transition haven't yet come through. So more than just the synergies, but the revenue opportunity. So what should we be thinking about as payoff from now on in digital?

Let me -- I'll do it in that order, maybe pick up on Mecca for me. So yes, GBP 120 million, that's where we were headed. And I think we can be headed there again. I wouldn't want to put a time frame on it today, but I think we -- that's where we -- this group should be headed. And no, we need some good fortune along the way. And we certainly need and I don't think this is good fortune. We certainly need the change in regulation that we talked to this morning, which is going to hopefully enormously help the fortunes of land-based gaming in the U.K. And land-based gaming in the U.K. has been left behind by -- and these opportunities don't come around very often, government inevitably doesn't want to look at gambling regulation and legislation too often. And when it does, it's kind of once in a generation in my experience, and I've been through there for quite a few of them. But this is an opportunity and not an opportunity to be missed. So I'm hopeful of really some positive change, which is a much needed change for land-based gaming in the U.K., which will help in and sustain more venues coming on to the Mecca point, but will more particularly enable the casino sector to flourish more than it can today, meet the needs of the customer, which is what we should be aiming to do, of course. Do you want to talk about the Mecca?

Yes. So I think the first thing to say, so as you rightly pointed out, Ivor, it lose around GBP 5 million on a true now fully allocated cost basis. We've already taken some actions. So we closed the 7 venues in the first half of the year with some further closures coming in the second half of the year. So there's a recognition from our side that we do have to address what the estate in Mecca looks like. I think there's 1 other factor that we shouldn't lose sight of is that we're looking at that as a Mecca venues business in isolation. And there is some doubt at least some value to the digital business from the fact that we have got a Mecca estate, either just from a kind of a top of mind, how people think about Mecca brand or an opportunity in terms of converting customers to be multichannel customers. So there's something to think about in all of that. To the specific point around the fixed bit of allocated costs from the center. There is some of that, that can be varied with the number of venues. But I think having the total cost now in the P&L makes them think about the total cost base in entirety rather than different people thinking about different cost components. So I think it's the right thing to do, and it will drive the right level of visibility and focus. Is there going to be radical reductions in that central cost base over the next 12 months? I don't think it's going to be more of a medium-term drive to improve that profitability.

And in terms of the digital business, I think we have spent well, 3 years effectively, working to 1 single aim, which is to migrate -- to develop out the RIDE platform for the migration of the Rank brands. It was a huge piece of work. We had pretty much that, well, I don't want to say 100% because there's always other development. But the large part of our development effort and the capability was focused on migrating the brands, preparing the platform for the migration of the Rank brands, and we're through that. And therefore, what that does is effectively frees up a lot of -- not all because we've still got a lot of development resource focused on platform enhancements, platform scalability. We've got more core developments too, because what we've delivered so far is we've delivered the platform for our digital business. What we now need to do is deliver the platform for our business across the board and including our venues business because that shapes the -- and we're doing 2 things. One is shaping the platform for supporting our business in its entirety. And number two, we are developing out very quickly developing out what we call a kind of customer engagement platform, which is moving all of our multiple customer databases, we've got more customer database than you can shake a stick at onto a single central engagement or customer engagement platform, which delivers real-time information to our colleagues on customer behavior in a little time, much more timely way than we can today. So -- and across channel. So -- and that's important for, I mean, very important in terms of the way in which we manage interactions with customers, both commercially and in terms of safer gambling. So there's lots of developments in the pipeline. Nonetheless, having delivered what we've delivered, it frees up a lot of development capability and now focus on improving the user experience online, new products, new journeys, and we are very focused on that road map. And that's what we'll show you when we hopefully have an opportunity later in the year to invite you in and to showcase what we're doing in the digital business. Many thanks. I'm going to draw stumps if that's okay. Many thanks for joining us this morning, and I look forward to seeing you, or see you before our next set of results. But many, thanks for joining us this morning.

Thank you.