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

Good morning, everyone. I'm John O'Reilly, Rank Group CEO. I'm delighted to welcome you to the group's results presentation for the year to the 30th of June 2023. Many thanks for taking the time to join us here this morning. Many thanks to -- for those of you who are joining us online. Well, one way or another, and we've had a lot of [ thrown aces ] in recent years. But we've turned the corner with a stronger second half performance. We've started the new year well, and we have the much needed reforms in the U.K. government's gambling review to look forward to. I'm going to provide a summary of the group's performance in the year '22, '23. And Richard Harris, Rank Group's CFO, will then run you through the financial numbers in a good bit more detail. 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 are with a vitally important government review of U.K. gambling legislation and regulation. We had a stronger second half to the year, which has given us a growing momentum as we've entered the new financial year, and we got off to a good start. Our second half like-for-like operating profit of GBP 16.1 million resulted in a full year like-for-like operating profit of GBP 20.3 million, and that's in line with the April guidance. Now I would remind you that the group was heading towards an operating profit of over GBP 120 million when lockdown started in March 2020. And since reopening from lockdown, we've had the impact of travel restrictions, tightened jobs market, high wage inflation, a huge increase in energy costs, general cost inflation, interest rate rises and the economic squeeze on the consumer caused by much of the above. And we're now on the way back. Revenues and profitability have been improving within the U.K. venues business. Grosvenor and Mecca, Enracha continues to perform very strongly, and we're seeing strong digital revenue growth with the Rank brands now operating on our proprietary technology platform, and we have full control over the delivery pipeline of the online customer offering. Refinancing has been concluded with GBP 100 million RCF and the term loan has been paid off. We continue to have a strong balance sheet with limited debt and with it the ability to continue to invest in our strategic transformation priorities. And with trade improving, we also have the significant benefits to come from what I'd describe as the long overdue land-based reforms, which are outlined in the government's April white paper and the subsequent consultation papers published in late July. Now getting into a little more detail. I'll start with the Grosvenor Casinos business, the health of which is obviously key to the overall performance of the group. Like-for-like revenue of GBP 306 million in the year was up 4% from the prior year, with second half revenue growing 15% on what had been a very weak second half of '21, '22 following a first half in which revenues declined 5%. The graph you see here shows average NGR by week since Q1 2020, '21, following the reopening from lockdown. It shows the heavy impact on revenue from affordability measures in Q3 and Q4 of FY '22. Nothing wrong with affordability measures per se. Our responsibility as licensed operators is to ensure that our customers are spending within their means. However, from the robust implementation of affordability checks, in Q3 and Q4 FY '22, we've improved and continue to improve that customer risk management systems and processes and the skills of our colleagues in this regard. And that has been key to the gradually regrowth or regrowing of Grosvenor's revenues. And as we do so, the operational gearing of Grosvenor is such that -- just about every additional pound of revenue about 70p drops through to the bottom line. If I look at the business geographically, London was relatively soft with higher spending international customers not returning to London at the levels we've come to expect over the years, certainly before the pandemic and of course, before Brexit. As a result, revenue in London was flat year-on-year with visits up 5%. Outside of London, the picture is much stronger with visits up 7% year-on-year and revenues growing 6%. Like-for-like underlying profit post the allocation or reallocation of central costs declined 55% from GBP 36.5 million in FY '22 to GBP 16.3 million. And that reflects the material cost inflation, notably employment costs up GBP 12.2 million, energy costs up GBP 3.8 million and property maintenance up GBP 2.3 million, although some of the maintenance is clearly linked to energy efficiency measures within our Net Zero program. Cost pressures are easing and we've made a number of efficiency gains across the Grosvenor business. We've invested GBP 19.5 million across the business in the year with full refurbishments in Glasgow's Merchant City, to our casino in Gloucester Road in Kensington and to the Golden Horseshoe in Queensway. Plus, we've invested in air conditioning across the estate in back-of-house colleague facilities, any new products like wheels, tables, electronic terminals and continued modernization of gaming machines. More recently, we further strengthened the management team with the appointment of Mark Harper joined us as managing direct for the Grosvenor business, and Mark comes with a strong track record in hospitality and leisure. So '22, '23 was a tough year in terms of profitability, but Grosvenor is a business that had turned the corner, and it has major benefits to come from the government's white paper announcements of key reforms for land-based casinos. 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. Coming out of the pandemic, there's simply been too many bingo halls. And Bingo is liquidity game. Bigger tendencies drive bigger price boards, which in turn drive bigger attendances. And unfortunately, it works the same way in reverse. Mecca has been seeing and continue to see very strong volumes of new customers, and we're still also seeing customers returning to bingo following the lockdowns. But the volume of new and returning customers is not sufficient yet at least to return the business to pre-pandemic levels. As a result, we've been reshaping the estate during the year, closing 15 weaker venues, reducing the size of the estate to 56. And the results are coming through in a business which is refocused and is now carrying a strong momentum. Like-for-like revenue grew 7% to GBP 134 million, growing 4% in half 1 and growing 11% in the second half, and it's been a very long time since Mecca saw double-digit revenue growth. That's the benefit of having the estate of stronger liquidity venues with more attractive price boards driving bigger attendances. As a result, main stage bingo revenue grew 24% year-on-year. Gaming machine revenue conversely grew just 2% and that highlights yet again, the need for regulatory reform, which will enable us to modernize our gaming machine offering across the Mecca estate. The underlying like-for-like operating loss was GBP 5.8 million following a first half loss of GBP 4.8 million. We've made a number of light touch investments to venue exteriors and to gaming machine areas following the continuing success we've seen at Mecca Luton, which reopened following a full refurbishment back in March '22. And the results of those investments look very positive, and we're continuing with that investment program through this year. We have a strong management team in place. And as I say, we have a good momentum in the Mecca business. The bingo market in Spain has equally been affected by a step down in attendances following lockdown and pandemic restrictions. However, the Enracha business with its 8 flag or 9 rather flagship Spanish bingo and gaming machine venues has recovered strongly on the back of good attendances and price boards relative to competitors. Like-for-like revenue grew 19% to GBP 36.4 million with Bingo revenues up 10% and gaming machine revenues up 25%. Attendances were up 16% in the year. We've continued to invest in the gaming machine offering rolling out TiTo ticket-in ticket-out facilities for machine credits and withdrawals, new jackpot screen displays. And we've also rolled out a new customer loyalty card. Underlying like-for-like operating profit was up 11% on the year at GBP 9.1 million. It's a super business with flagship venues, a great management team and making an average of GBP 1 million operating profit per venue. In the digital business, we've continued to make good progress across technology, revenue and operating profit. And the key here has been the technology platforms. In the U.K., this is the technology we acquired through the Stride acquisition in October 2019 and in Spain, the platform we acquired through the acquisition of YoBingo in June 2018. We're in control in the development road map and of the pace of delivery, and this has repositioned the digital business. In the year, digital revenues grew 10% to GBP 203 million, with underlying operating profit growing 3% to GBP 13.8 million. In the U.K., Mecca grew net gaming revenue 9% and Grosvenor grew 14% and the other U.K. facing brands grew 5%. Now that all the Rank digital brands are operating on the right platform and development efforts move from migrations to customer-facing initiatives, these key development initiatives include new cross-channel products and services, AI-driven personalization, a new central engagement platform to drive real-time customer data, including cross channel, improved customer journeys, including around affordability checks and continued core platform enhancements to improve the scalability and performance of the platform and the speed of development and delivery. It's been another good year for the Spanish facing digital business with the Yo and Enracha growing like-for-like net gaming revenue 12%, and that's despite the heavy marketing restrictions in Spain. YoBingo, we hope is now close to completing the homologation process to become the first bingo site to launch in Portugal. So with exciting progress being made within the digital business, we're planning an event for shareholders in November and which will provide more insight into where we are, the road map and the opportunity for the group, both in the online space and all importantly, in the delivery of a seamless cross-channel experience for our customers. Now over to Richard to talk you through the financial numbers.

Thank you, John, and good morning, everybody. Nice to see you all. I'm going to start by walking you through the key financial results for the year that's just concluded. Overall, like-for-like net gaming revenue was GBP 679.7 million, up 7% on the prior year. Revenue growth for the group in the first half of the year at 2% had fallen short of our expectations, and it was pleasing to see an improved growth rate of 13% in the second half. Underlying like-for-like operating profit ended at GBP 20.3 million, ahead of the reset guidance we announced in December and in line with the guidance we gave at our trading update in April. However, like-for-like underlying operating profit was still well down on last year, and this did feed through into the underlying earnings per share of 1.2p compared to 4p in the prior year. Net free cash flow was an outflow of just over GBP 20 million. I'll take you through the various inflows and outflows in the period on a later slide, but the key driver was our continued investment in the business to drive sustainable profit improvement for the long term. Finally, we retained a strong balance sheet and ended the year with a small net debt balance, excluding leases of GBP 3.9 million. In recent months, we have concluded the amend and extend of existing bank facilities with the incumbent lenders, and I'll talk more on that later. So moving on. This slide shows the movement in operating profit versus the prior year. Revenue growth of 7% contributed an additional GBP 18.5 million to full year profit, and that takes into account associated gambling taxes as well as direct cost of sales. Employee costs are up GBP 18.4 million. There was an average increase of 10% across the group, with the majority of the larger increases paid to our venues-based colleagues. Energy costs were up GBP 5.4 million to just under GBP 29 million in the year. And within that, we benefited from the government support scheme businesses in Q2 and Q3. Energy costs have now declined from their peak but remained well above long-term averages. And I'll talk you through how we are managing our energy exposure going forward. The prior year benefited from GBP 6.6 million of COVID-related support, and that has obviously not been repeated during the year. Property costs are up GBP 6 million as we address some of the legacy repairs and maintenance issues we have faced in our U.K. venues businesses and investments were made into IT and marketing to drive business growth. Other cost inflation was GBP 7.8 million with pressures across the board. On the other hand, depreciation and amortization were down GBP 9.4 million, and that was largely due to the impairments made 6 and 12 months ago. So I thought it would be worthwhile spending some time on the operating profit movement between H1 and H2. First half revenue growth was 2% as mentioned earlier, an improvement on where we were in H2 of the prior year, but still falling short of our expectations, and this averaged at GBP 13.0 million average revenue per week. This, combined with the cost pressures I've just mentioned, led to an operating profit of GBP 4.2 million in the first half. Revenue performance then stepped up in Q3. And whilst we have a seasonally weaker quarter in Q4, total growth for H2 was 13% and an average revenue per week of GBP 13.2 million. In addition to the revenue upside, there were some easing of cost pressures in H2, particularly energy costs in Q4. The rationalization of the macro estate improved profitability, and we also saw a lower depreciation charge due to the impairment. The revenue growth in the second half, our associated operational gearing effect and the improved cost position that we delivered a much improved operating profit of GBP 16.1 million. This still remains a long way short of where we want the business to be, but a good improvement on where we were in H1. Having been through the like-for-like drivers of profitability, this chart walks you through the full income statement. Just a few items that I'll pull out for your attention. So there's a GBP 1.2 million loss in the year generated by the 15 closed Mecca clubs and 1 closed club in Grosvenor. The active management of the estate we undertook will have a further positive impact on profitability in FY '24. The year saw a net financing charge of GBP 12.3 million. And of that, GBP 5.8 million is net external interest payable and GBP 6.5 million relates to the interest on lease liabilities. Separately disclosed items totaled GBP 129.5 million, and I'll talk you through the breakdown in the next slide. The underlying effective tax charge was only GBP 600,000 at an effective rate of 8.8%. That's largely due to lower-than-expected profits in the U.K. and a small tax credit on overseas profits. So here, you can see the breakdown of those separately disclosed items, and they were significant in the year largely due to the impairments. Impairment charges totaled GBP 118.9 million, of this amount, GBP 61.5 million relates to Mecca, GBP 53.3 million in Grosvenor and GBP 4.1 in the Enracha business. The majority of the impairment charges occurred in the first half of the year, following our rebate in our profit expectations in December '22. On the other hand, there were GBP 6.6 million of impairment reversals in Grosvenor with those clubs outperformed in previous expectations. Amortization of GBP 8.6 million relates primarily to the acquisition of Stride Gaming and YoBingo and the charge is reducing year-over-year due to some of those assets now being fully amortized. The costs associated to closing the Mecca venues was GBP 7.7 million. And there are a few other smaller items, which I won't go through here, but are listed on the slide. Finally, there is an offset in tax credit against the separately disclosed items of GBP 27.7 million, and that can be utilized against future profits that we expect to make in the U.K. So moving on to cash flow. You can see here a bridge from operating profit through to net free cash flow. The free cash outflow in the year was GBP 20.3 million as we invested in the business to deliver that sustainable profitability improvement for the long term. Just highlighting a few points on the slide. So working capital inflow was GBP 3 million, and this is now normalized after a large working capital inflow in the first half. Total capital expenditure was GBP 44 million and that capital expenditure falls into 2 key categories being the maintenance of our venues estate and digital platforms and our investment for growth. Maintenance spend included an investment to resolve the historical backlog of issues in venues such as air conditioning, heating and electrical equipment, back-of-house spaces for colleagues. And we've made some investments, so we'll have an improved financial and environmental impact, for example, LED lighting. Growth CapEx focused on venue refurbishments, investment in the gaming product and venues and the upgrade and replacement of end-of-life Mecca Max tablets. Finally, following the migration of Grosvenor and Mecca into the proprietary platform, we continue to make proposition enhancements in our digital business. The cash outflows on separately disclosed items were GBP 9.5 million in the period. and this primarily relates to the costs associated with rationalizing Mecca venues estate. And in the table on the right-hand side, you can see there is a relatively straight forward flow through of our net free cash flow into a closing net debt of GBP 3.9 million, excluding leases. As I mentioned earlier, we concluded on a refinancing package, which totaled GBP 100 million of revolving credit facilities with existing lenders. GBP 75 million of the facilities are committed through this end of February '25, and the balance of GBP 25 million is committed through to November '24. On average, we see amend and extend by approximately 9 months. No changes have been made to the covenant tests being net debt-to-EBITDA at less than 3x and interest charge being at least 3x covered. During FY '23, we repaid GBP 34.5 million of the term loan used to acquire Stride Gaming. And as part of the refinancing, we repaid the balance of GBP 44.4 million ahead of its maturity in May '24. We will look to replace the GBP 100 million of RCF with a longer-term refinancing package in FY '24. We think this gives us the best opportunity to demonstrate improved financial performance and secure the best possible financing terms. The last slide in my section summarizes our financial guidance for the year ahead. So first, following on from the improved performance in H2, we see positive momentum in both revenue and profit across all of our businesses and John will talk more on current trading shortly. Energy costs have reduced significantly from the high seen over the last 12 months. However, they remain well above historic norms. To plan the business with a good level of certainty, we've taken a much more proactive approach to fixing the price of energy in advance of consumption. We have fixed the price of 70% of our consumption for the full year and 90% of expected consumption in the first half. Expected costs for the year ahead are GBP 20 million for the group, down from just under GBP 29 million in the year just gone. And for the balance of consumption that we haven't fixed, we've used current market prices into determining that GBP 20 million forecast. During the first half, we moved all of our electricity requirements to a renewable source and we'll benefit from our dedicated purchase power agreement from October '23. We also have further initiatives in flight to reduce our energy consumption in the short to medium term. Including the use of energy monitoring devices on key assets. Moving on to wage costs, which probably make up about 45% of the group's total cash costs, excluding gambling DTs. We've implied an average pay rise of approximately 7% from the first of April just gone, and that will obviously impact the first 9 months of our financial year. And then we've budgeted for a sensible improvement in the final quarter that allows us to remain competitive in all of our markets. There was some pressure on interest costs, not least from the significant increase in the base rate over the last 12 months. The arrangement fees from our refinancing are spread over the life of the facilities and updated margins applied from early August. These increases are partially offset by the fact we've repaid the term loan in the recent round of refinancing. But overall, I would expect to see a small increase in the interest charge for the year ahead. Clearly, this is also subject to any further movements in the base rate. Total CapEx for the year ahead will be around GBP 50 million. Around 30% of this is driven by maintenance spend in venues ensuring they remain operational and all hygiene factors dealt with. We're dealing with a bit of a historical backlog here. So there will be a period of elevated spend that will then drop off over time. In relation to our growth CapEx, both Mecca and Grosvenor have a number of consumer-facing schemes in place to drive the best possible financial return. This includes upgrades to the external signage investments in product in both Grosvenor and Mecca and low-cost refurbishments in Mecca. There are a handful of full refurbishments planned in Grosvenor, including in our largest casino, The Vic and 2 refurbishments planned in Enracha. Around 30% of our CapEx is now related to the maintenance and development of our digital platforms. John will share some examples of how we're going to invest that money in a moment. Finally, on the guidance, the gambling Act review. We're in the consultation phase, as John mentioned, and do not expect it to be a material impact on our financial results in the year ahead. They are the key points from me. I'll happily answer any questions later, but in the meantime, hand back to John.

Thanks, Richard. That was the year. And I will now update you on where we're headed by way of a strategic update and also provide a little more color around current trading. Let me start with the gambling review, though. So U.K. government's review of gambling legislation and regulation, which provides much needed and vitally important reforms for land-based casinos and bingo. Government's white paper published on 27th of April outlining 62 public policies for reforms to gambling legislation and regulation. And that was followed on the 26th of July by 2 consultations from DCMS, covering land-based reforms and online slot stakes and a consultation from the Gambling Commission covering remote financial risk assessments, improving consumer choice on the direct marketing they receive, remote game design and a few other proposed regulatory changes. The key reforms from our perspective are those included in the U.K. government's land-based consultation document. Now we expect the proposed changes to gaming machine allocations to the Grosvenor estate to double the number of gaming machines to better meet consumer demand. A more modern machine offering with much greater choice for the consumer and adding to the ability to offer sports betting will help broaden the appeal of casinos in the U.K. In Bingo, the government is consulting on 3 options for a change to the currently restricted 80-20 rule which allows 20% -- just 20% of gaming machines and a Mecca venue to be the B3 machines, which are the machines customers want to play in which account for over 70% of our machine revenue. Now ideally, we'd like the 80-20 rule abolished altogether, but a move to 50-50 would be a positive step for our customers. Very importantly, the government is consulting on enabling electronic payments in land-based gaming. Something which we will clearly benefit both casinos and bingo. And today, a customer needs to go to an ATM to get the cash to credit a gaming machine. And most of our transactions in our restaurants and bars for that matter in Grosvenor casinos and in Mecca are electronic payments. And this contrasts with zero electronic payments in machines or electronic terminals. All of these proposed reforms can be delivered through secondary legislation, which the government plans to implement by or plans to complete by summer of 2024. The white paper also announces or outlines a number of reforms requiring primary legislation, and those reforms from our perspective, include credit for high net worth, international customers in casinos and the extension of electronic roulette to enable other table games such as blackjack to be played on a terminals, something which would, of course, enable customers to play at lower stakes than is possible on a live gaming table. And it's helpful to have those changes now in public policy laid out as they are in the white paper, but it's unlikely that we'll see the required primary legislation to implement those changes anytime soon. The important digital reforms, including the maximum stake in online slot games and the proposed financial risk assessments are now in consultation, and we hope to get a pragmatic outcome which provides appropriate levels of customer choice and genuinely frictionless checks to ensure customers are playing within their means, something which has rightly been the government's intent. We're currently working hard on 2 fronts: one, to ensure that legislative and regulatory changes are evidence-based and meet the needs of today's consumers and two, to ensure we're ready to implement reforms as quickly as possible and to maximum effect. The group strategy is delivered through the transformation program framework, which ensures our key initiatives are properly prioritized resourced and tightly monitored as they progress through to delivery. We slowed a little in property refurbishment projects in the second half of '22, '23 as we ensured we completed the refinancing, but it was a busy period nonetheless, and a summary of some of the key initiatives delivered through the second half of the year is included in the appendices to the deck. Here are some of the highlights of the transformation as we are delivering in the first half of this year. In Grosvenor, we'll be upgrading the external appearances of 5 casinos and we're commencing enabling works for a full refurbishment of the Victoria Casino, The Vic as its [ collection ] road. We're running a sports betting trial at Grosvenor Luton, which is our only 2005 Act license casino. And most importantly, we're continuing to prepare for the reforms to casinos, particularly around machine allocation, sports betting and electronic payments. In Mecca, we're making investments to the external appearance of the next 6 venues. We modernized the gaming machine area of 10 key sites in preparation for the legislative reforms when they come. And we're rolling out 1,700 new Max tablets for an improved game play experience across the Mecca estate. In Enracha, we hope to be on site with 2 further refurbishments with particular focus on the gaming machine offering and they are at Sabadell, in Catalonia and in Seville. We're rolling out new food and beverage and food and beverage and EPOS system, which we've been successfully trialing and are integrating a new CRM system. Within the cross-channel work stream, we've been building the capability within our Capetown tech champ to develop single cross-channel apps for Mecca and Grosvenor. These new apps won't land in half 1, but the hard yards are been put in now in what is a very exciting project, given how we have historically underperformed in the app space. We've just launched single membership for Mecca customers, become a member in venue and you automatically have an online account. And likewise, if you join Mecca online. And the next step is the development of a unified membership system where the customer has a single membership or account across both venues and online. One of the many benefits of that is a lot more customer information being available to our venues colleagues. And we're evolving seamless cross-channel rewards programs across both Mecca and in Grosvenor. Also in digital, the next phase of platform development is to move to the cloud. to further increase our scalability and drive efficiencies. And that program will be completed in the next few weeks. We've been building a single content management -- single content management system for all of the brands now operating on the proprietary technology platform and we'll roll out the first brand next month. In Spain, we're launching a daily live streamed bingo service. And I think the chart here rather does a bit of a disservice to the developments within the digital work stream. But as I mentioned earlier, we'll be holding the shareholder event in November to provide a full overview of where we are and where we're headed. And in terms of the work stream to improve organizational capability, we are just completing the build-out of the Central engagement platform, bringing together all of our data onto a single real-time platform to better serve the business at every level. We're rolling out AI across customer support following some very successful trials over recent months, and we're reviewing corporate delivery models to assess further opportunities for automation and for cost efficiencies. And that's just a sample of what's happening within the business to restore the group to the trajectory that we need to get ourselves back on to. Here is the outline of just some of the highlights of the progress we're making with the ESG transformation work stream. In terms of the customer work stream, a key development is the completion of the build of our central engagement platform, which provides that single repository and one version of the truth for all our customer and other data, and that's central to further improving customer monitoring from a risk perspective as well, of course, of ensuring we're better meeting the needs of the individual consumer in real time. Our 1,200 colleagues across our businesses have undergone in-depth safer gambling training in just the past 12 months. Within the colleague work stream, we appointed a new Chief People Officer, Hazel Boyle, who joined us in September and we have subsequently strengthened the people team across the group. We've made further improvements in colleague engagement and employee Net Promoter Scores in our latest employee opinion survey. We further rolled out the EVP employee value proposition and have also recently launched a new Careers website for colleagues. Much more work around people policies, benefits, career paths, training support are all underway under Hazel's leadership. Now very significantly in the environment work stream, we've completed our first net zero plan, which targets net zero being reached for Scope 1 and 2 and some Scope 3 by 2035 and with all scopes met by 2050. With a whole host of decarbonization initiatives underway across our venues, we've rolled out monitoring technology into 40 venues, which provides our colleagues with a rich energy usage data. And we've now launched our colleague engagement program, which we called Rank Planet with 110 net zero champions in place across the group. And in our local communities, we've continued our support for the Carers Trust, raising another significant sum during the year. There are way too many local initiatives to highlight here. But you'll find a lot more examples of the work we're doing across our ESG program within Rank Group's latest sustainability report, which we'll publish in September alongside the annual report. And now just a few words on current trading and outlook. We've had a strong start to the new financial year. As we both mentioned, overall group like-for-like revenue is up 16% in the first 6 weeks of the new year. Grosvenor Casinos revenue is up 17% and Digital up 13%. And London continues to lag behind the rest of the U.K., but we've seen some improvement coming through in August. Mecca is seeing strong trading, certainly helped by the rather average U.K. summer weather we've seen in July and August with like-for-like revenue up 17%. Enracha is seeing solid growth with revenue up 12%. And digital NGR is growing 13% year-on-year. So strong performances across the board. It's only 6 weeks, but strong performance across the board in the early part of the year. In terms of the outlook, we're conscious that cost of living pressures will likely continue to bite on our U.K. customers over the coming months. Nevertheless, we expect to see revenues and profitability growing across all of our businesses as recovery continues in U.K. venues, we benefit from the continued investment in the transformation program and digital continues to scale. The balance sheet remains in a healthy position, and we have plenty of investment opportunities to drive growth and in preparation for the regulatory reforms from the government's gambling review when they're delivered. It's been a tough couple of years, but the good news is we're market leaders in what we do and tough market conditions hit our competitors harder. The Grosvenor Casino business has significant operating leverage, which drives profitability as revenue improves. Mecca has been reshaped to return to profitability. We have a digital business in increasingly good shape. We have a talented management team. And whilst we've had a lot of [ thrown aces ] in recent years, we believe we're very well placed to accelerate profit growth this year and into future years. And that takes me to questions. We're going to take questions from the room first, I believe. [Operator Instructions]

Ivor Jones from Peel Hunt. You've talked about KYC type checks in Grosvenor venues being intrusive and now being less intrusive. Is that something that's measurable? Is that part of the positive growth in current trading? Is that coming -- is that positive change coming through now? Or is that for the future?

It's coming -- it has been coming through progressively. So the interesting thing here is regulation hasn't changed in truth. What has changed is the gaming commissions interpretation of regulation. A lot of regulatory framework under which we operate is gambling commission guidance, and that is consistently changing over time. And back in 2019, '20, a much stronger focus put on customer affordability. And as we reopened following the pandemic, we implemented a new risk model across our businesses -- across the globe -- particularly high risk in the casino business clearly in the bingo business, we introduced a new risk model. And I think it was too robust. It was too demanding on the consumer, put too much friction on the consumer too early in the customers' life cycle. An example of that would be a customer who comes along has a great evening, loses some money. Comes along the next week as a super evening, loses some money. We look after customers enormously well. And when they come on the third evening, they've hit some invisible trigger and suddenly they're being asked for documentary evidence of source of funds. That is not a great consumer experience. That consumer experience is improving through technology and through the skills of our colleagues, and that's been a strong focus. And I think in the -- our low point there was the second half of '22 and you can see it now coming out at '21, '22. And you can see it now coming out of the other side of that much stronger skill set. And -- but protecting our customers, ensuring that customers are spending within their means, but doing so through positive interaction rather than that negative -- have a negative interaction when the customers hit an invisible trigger.

Okay. You said part of the CapEx is going in Mecca, but you've also closing some underperforming sites. So is the Mecca CapEx being put into a subset of sites that you're very confident about that clearly have a future. So are you putting it into all 56 sites?

No. So we're at 56. We've got in the current year, and we're 6 weeks in, 5 venues not making money in the first and 51 are, which is a marked change as you can tell from the prior year. And that's reflective of strong double-digit growth in revenue. But we are targeting capital in those venues, which are the stronger performing venues with the strongest attendances and yes, with the strongest opportunity to grow. Interestingly, we invested in and reopened a very, very different bingo, which you've seen in Luton and great venue. And -- it is our strongest performing venue in the [ Mecca ] estate. It continues to improve. And there are lots of learnings from that, actually, lots of learnings. And some of those learnings, we can readily implement some relatively small amounts of capital in a larger number of venues, and that's the focus we're putting in. We're also preparing for the gambling review because the move from 80-20 to 50-50. And I would rather -- there wasn't a rule, I would rather wasn't a rule, but there will be a rule, I suspect. And in moving to 50-50 that materially modernizes the gambling, the gaming machine offering for customers. If you -- when you next wonder into a bingo hall in the U.K., what you'll see is some very nice machines. Amidst a lot of old real-based machines that, frankly, consumers don't wish to play. And they're there because we have to provide 80% of our machines as category C or D machines, which, yes, you can buy modern nice category C machines, but these are machines that have GBP 100 maximum price, which is considerably less interested to the customers today. I quote to the officials at DCMS, the last time that the Cat B3 prior was changed, was 2011, and GBP 500 in 2011 is GBP 300 today. So -- but moving to machines that offer GBP 500, which are 70% plus of our revenue, will make the material difference. And some of the CapEx is going into preparing our venues for a more modern machine offering.

Okay. And last one, will there be cash exceptionals this year?

There might be some residual cash exceptionals on the closures that we've already completed, but nothing outside of that. That's great.

Richard Stuber from Numis. Can I ask 3? Should be one at a time? Or?

I don't mind Richard. However you want to throw them at us...

I'll do them all at the moment. The first one is -- you mentioned that pre-COVID on your way to [ GBP 120 ] million of EBIT. Do you think that structurally that anything has particularly changed so that you can't get back to that in the medium term? I know you've closed a few venues. Can you get back to GBP 120 million even excluding the upside from the gambling at review? And how many do you think that will take? Second question is on energy costs. Could you say how much of the savings this year is from energy efficiency savings and how much is sort of lower unit pricing? And the third question is, can you just a bit more color on the competitive landscape in venues, casinos and bingos. Are they -- in terms of what they're doing around competition for staff, any sort of closures, anything on that front, please?

Okay. Let me start with the first one, and maybe Richard will chip in on this, too. So I mean, the last thing I want to do is give you a forecast, really. But we were at GBP 120 million or heading in that direction when we closed. It is a different business today, it is. And I don't think you can look back at where we were other than to say we think this business is one which has significant -- a significant number of opportunities ahead for it. I've mentioned the operational gearing in the Grosvenor business, and we don't need to materially move revenue in Grosvenor to materially move the bottom line. It flows through very quickly from revenue to bottom line. It's a business with a lot of fixed cost. Property and people fixed cost in the most part. But as we drive revenue, and we are seeing revenue growing back into Grosvenor, our expectation is that will drop through to the bottom line. We're moving Mecca back into profitability. And we expect to move Mecca back to kind of low teens of profitability over time. And the digital business got lots of upside opportunity. Both in the U.K. and internationally. So yes, we expect to be getting back on that sort of trajectory to where we're headed, yes, we do. I wouldn't want to put a time frame around it. We've also got the benefit clearly of the gambling at review and -- which I think is very material because it will enable casinos and bingo to just compete a bit more effectively. We're the only business, I think, maybe we're not. But we were the only businesses whose customer proposition is largely determined by regulation and legislation. We can decide what [ beer ] we put in the pumps. But beyond that, actually, what machines we offer, what games we play are determined by Whitehall and Westminster. And understandably, government does not want to look at gambling regulation legislation on an ongoing basis, and you can't blame them for that. If I were in their issues, I wouldn't want to do that either. But when they do, very important that we drive the right kind of positive changes for the consumer, and that's the opportunity we have in front of us now. So I don't want to give you a forecast, but significant opportunity for this group moving forward. Do you want to take energy costs?

Yes, quite a simple one. So we are going from GBP 29 million to an expectation of GBP 20 million, so GBP 9 million reduction. I'd say it's broadly 80-20 in favor of unit pricing.

And on the competitive landscape, I think keep comments inevitably there -- there are a bet of winners and losers, and there are a bet winners and losers. So if you've got -- in the bingo market, if you've got stronger tendencies and strong price boards you're doing well. And if you haven't, you're not, is the reality of it. So I think the reduction in the attendances that was brought about by lockdowns and social distancing and other restrictions at the time exacerbated, magnified it, actually puts you on a light on the impact of liquidity. And we've done some reshaping. We're now in a much stronger position as a consequence. And I think we came into this actually, fortunately, with larger, stronger properties. And yet we've closed 15. But as I say, we're now back this year to only 5 losing money. And hopefully, that will progress further as the year goes on. Similarly, in casinos, there is more competition, actually, I think, right now than there's probably been in recent years in London, particularly the strong competition. I mentioned London being softer than outside of London. Part of that is international customers not returning to London in quite -- the numbers that were the case. And it's not that our Middle Eastern customers are not coming to London they maybe are, but whereas they'd make London their base going back in time, that is less the case today. Part of that is about tax-free shopping relative to Paris, Milan and elsewhere. So there clearly is there a softening. But on the other side, what's happening in London is more people are returning to offices and that is helping on Friday nights are returning in London, which is positive. So lots of factors. But in London, you've got pretty much the same number of casinos competing for a smaller number of international customers coming into London. So that has been a factor. But nonetheless, moving in the -- but that too is moving in the right direction.

You've got a couple of questions, John, from Greg Johnson at Shore Capital. First of all, he asks how much of digital growth is being driven by multichannel players. And secondly, how much of the shortfall in profitability compared to pre-pandemic levels can be realistically recovered over time? And what are the main impediments to a full recovery?

So our sweet spot in the digital business is the strength of our new brands. And something like 70% of the online casino market in the U.K. comes from customers who say they've been to the casino in the prior 12 months. So there is a material overlap. And the same is too in bingo. There is a very material overlap between bingo players online and bingo players in venues. So that's our sweet spot. And it's a major part of our digital growth is coming from that. We -- and that will continue going forward, we think that's very much the area of focus. And we've made some organizational changes that we've announced this year to ensure that going forward, that single customer seamless experiences that are a real focus for the group. So very material. In our -- broadly to answer the question quantitatively, about half of our revenue online comes from players who are playing with us in venues. So very material. And they're worth more to us too is the point, worth significantly more longer lifetimes inevitably, and we get a higher share of wallet from those customers. So they are very important part of what we do. I think the second question is about the kind of trajectory and return to the kind of numbers we were seeing before the pandemic. And I think as I've said, we're on the -- we've turned the corner. We're on the way up. We've got a lot thrown aces. It continues to be the place. It's not an easy consumer environment. But from our perspective, it is certainly improving, and we're seeing that across all of our businesses. And as we've said, we're not going to make a forecast, but our expectation this year is that we will grow revenue and profits in all of our businesses, which is about as bold statements, I'd like to give Greg at this moment in time. Have we got any more questions? Great. Ladies and gentlemen, thank you very much coming. Delighted to see everybody. Isn't it nicely back in-person, seeing folk. Many thanks for that. And for those who joined us online, many thanks. And we'll see you in November when we'll update you on our digital business. Many thanks.