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

Morning, one little video there, which shows something of how our colleagues across the businesses that make up the Rank Group deliver fun, excitement, and entertainment to our customers. I mean you're going to see a lot of numbers this morning, but as always, but ultimately giving fun to our customers is actually what this wonderful business is all about. Right. Morning, everybody. I'm John O'Reilly. I'm Rank Group CEO and delighted to welcome you to our results presentation for the year to the 30th of June 2025. Many thanks for taking the time to join us here this morning, and thanks to for those joining online. All very welcome. I'm joined by Richard Harris, Rank Group's CFO, who will take you through the details of the full year results in a moment. But by way of a sort of brief overview, it's been another really good year of very solid progression for the group. We've delivered growth across all of our businesses. And we now have that inflection point of the casino legislative reforms to look forward to. And their reforms, which I think represent the most significant change for the U.K. casino sector since the 1968 Gaming Act, so something that we are really looking forward to. These are the headlines for the year to June 2025. Like-for-like net gaming revenue was up 11% over the prior year at GBP 795.3 million. Underlying like-for-like operating profit was GBP 63.7 million, and that's up 38% on 2024 and slightly ahead of our expectations at this point in our progression. The group's underlying like-for-like operating margin was 8%, up from 6.5% last year. We're making really good progress in terms of the return on capital employed, and we were up 4.2 percentage points in the year to 14.5%. Grosvenor Casinos delivered average weekly NGR of GBP 7.3 million, and that was up 14% on the year and above the GBP 7 million that we've been targeted, and we got there a bit faster than we expected. So very pleased with that. Mecca had another year of improving performance with revenues up 5%. And Enracha continued its strong performance with revenues growing 9% in the year. So good performance across the venues businesses. In digital, revenue grew by 10% in the year with very strong growth from our 2 cross-channel brands, Grosvenor Casinos growing by 22% and Mecca Bingo growing by 11% -- the land-based casino reforms are on the statute book, and we expect to be rolling out around 850 machines this financial year and commencing that process in just a few days' time, all being well. And I'll say a bit more about that as we go on. And with the strong momentum across the group, the Board has set a final dividend of 1.95p per share, taking the full year dividend to 2.6p. So in the round, it's been another good year for the group. Our performance continues to improve, and it reflects the strategy we have in place, the priorities we've set and I think the high quality of execution of our key initiatives. And I'd like to thank all of my colleagues across the group for the hard yards and lots of skill and talent that they put in over recent years to ensure that Rank is making really strong progress and building profitability and cash flows and increasing returns for our shareholders. And here's Richard to take you through the details of the numbers.

Thanks, John, and good morning, everybody. I'm going to take you through the group results, a little bit more detail on the business unit performance and then spend a bit of time focusing on CapEx, return on investment and cash flow. So starting with the key drivers of the profit improvement in the first -- in the year. Revenue growth of 11% contributes almost GBP 50 million of additional profit after deducting all the direct costs. And that's partially offset by higher employment costs of GBP 26 million, which have grown 11% on the prior year. And that's due to the higher national minimum wage, 1 quarter's impact of higher employee national insurance contributions, some selected investments in headcount and some additional costs associated with colleague incentives. And looking forward to '25, '26 on employment costs, we're expecting a further increase of 6% to 7%, and that's largely driven by the same factors. Depreciation costs were higher in the year due to the capital investments we're making in the business. And overall operating profit is up about 38%. Net free cash flow in the period was GBP 27.7 million. Within that, capital expenditure was GBP 58.5 million, within our guided range of GBP 55 million to GBP 60 million. It's up on the prior year as we started the investment to capitalize on the casino reforms. And obviously, we've taken the refurbishment of the Vic. There's a net working capital inflow of GBP 10.9 million and around half of that improvement is sustainable improvement for the medium term and half is temporary in nature, and we expect that half to reverse in the first half of '25, '26. In the table on the right-hand side, you can see how the net free cash flow has converted through into a closing net cash balance of GBP 45.4 million. There's GBP 3.8 million consideration received on the disposal of the nonproprietary business, on which a further GBP 3.7 million is due over the next few years. We restarted the dividend last year and included the interim dividend for this year, total dividends paid was GBP 7 million. Including lease liabilities, net debt was GBP 130.8 million. Within this, lease liabilities have increased by GBP 23 million in the period and lease liabilities as a multiple of lease payments are now sitting at 4.4x. And that's because we've extended the leases on a number of strategic properties in Grosvenor that will come to the end of their lease term. There are still a handful of more leases in negotiation. And as a reminder, we expect the medium-term position to be in the range of 4.5x to 5x annual lease payments. We've now entered the higher capital investment phase with spend in the year of GBP 58.5 million. We've made significant progress with the maintenance and infrastructure backlog over the last 2 years. And whilst there's still some work to be done in the year ahead, the venues estates are now in much better shape. In Grosvenor, we completed the refurbishment of the Leicester casino at the start of the financial year, invested in the refurb at the Vic, upgraded electronic terminals and table equipment and prepared a number of venues to capitalize on the opportunity from the casino reforms. In Mecca, a large proportion of the spend was relating to maintenance and infrastructure, but we also made selected investments to improve gaming machine areas, improve external signage and further investments to modernize the proposition. The growth investments are all delivering strong return on investment, and I'll bring that to life shortly. Total spend on the proprietary digital platforms was GBP 9.3 million, with the vast majority of the spend being capitalized headcount. This year, we reported the group's return on capital employed for the first time. We've entered a higher capital investment phase, and this is the mechanism by which we will hold ourselves to account and demonstrate the returns that we're delivering. It's something we already monitor internally at both the project level, but also at the group level as part of our capital allocation framework. As you can see, ROCE has improved relatively materially over the last couple of years to 14.5%. We've got clear hurdle rates in place, and we're going to prioritize those investments that present the clearest growth opportunities. where the competitive potential in local markets is the highest and the investments that allow us to quickly assess the impact of the casino reforms. So moving into the business unit detail for last year. Grosvenor venues grew NGR by 14%, and that was a bit ahead of our expectations. Table gaming revenues grew 18% as a result of the investments we've made in product and table management. Electronic gaming grew 21%, and I'll touch on that more in a moment. Gaming machine revenues were up 8%. That's ahead of the visits growth, but with supply limited and unable to fully meet the customer demand. Geographically, the rest of the U.K. grew strongly at 17%. The total growth for London was 9%, but excluding the Vic, the other venues in London grew 21%. Employment costs were the main headwind, growing GBP 14.1 million in the year. And taking all of that revenue growth and employment costs into account, like-for-like operating profit was up 35% to GBP 32 million. When combined with the excellent colleague engagement scores at 8.4%, improving customer NPS and the casino reforms, there's much to be optimistic about within Grosvenor. So I thought I'd take a little bit of time just to illustrate the return on investments we've seen so far with some brief examples. So this one, electronic roulette accounts for around 15% of Grosvenor revenues. And in comparison to table-based roulette, it offers the customer a number of benefits. So you've got independence from other players, a private game that is uninterrupted. We've got stake size of the customers choosing with minimum stakes much lower than those on tables. The opportunity to win progressive prizes, including going for Gold, one of our side games and all that available 24/7 in all of our casinos. Over the last 12 months, we've removed poorer quality, older terminals, some of which have been in our venues for over 10 years. We replaced these machines with new high-quality terminals that are already proven elsewhere in our estate. The in-year investment was GBP 7.8 million in 545 machines, and we haven't changed the total number of terminals at around 1,350. The customer benefits of the changes include high-quality, consistent customer experience, much improved user interface, which is more intuitive and with better imagery and content. And we've been able to introduce new games, including Baccarat. It all sounds relatively simple, but the investment is delivering great financial returns. Stakes are up 39% on the new terminals compared to those that they replaced. NGR on the terminals is up 42% from the period that they were launched, and the return on investment has been 45%, which indicates a payback of just over 2 years. And overall, this was a significant contribution to the ER total growth of 21%. So having grown the digital business by 12% in '23, '24, we've grown by a further 10% in '24-'25. That's despite the introduction of maximum slot staking limits online from the beginning of April. Both of the cross-channel brands have grown by a double-digit percentage with Grosvenor performance being particularly strong. We launched new Grosvenor and Mecca apps early last year, and the penetration of app revenues has increased from 13% to 30%. The Spanish digital business had a tougher period with revenues flat. And in addition to the maximum slots staking limits, the new statutory levy also took effect from the 1st of April. We now pay 1.1% of GGY, up from 0.1% previously. The combined impact of these 2 Gambling Act review measures were a negative GBP 1.9 million in Q4 and they have an annualized impact of around GBP 8 million. Despite this, like-for-like operating profit grew 41% to GBP 33.3 million. At the Capital Markets event we held in December 2023, we set out a target to deliver 500 basis points of margin improvement in digital in the medium term, which we then subsequently increased to 600 basis points on a like-for-like basis. You can see here that we've grown margins from 6.5% to 14.1% in that time. And of the increase, 1.3% relates to the disposals of both the nonproprietary business and Passion Gaming. The rebased starting point of 7.8% has then subsequently increased to 14.1%, and that's the combined effect of the operating leverage that comes from a double-digit growth rate over 2 years, plus the operating model enhancements that we've made in that time. Looking forward, we see a 12-month period where margins will level off, impacted by the statutory levy and the dilutive impact of the maximum slot staking limits. In addition, there'll be a non-like-for-like impact from the launch of YoBingo in Portugal. From '26, '27 onwards, we see further room for improvement benefiting from the planned revenue growth. Moving to land-based bingo. So in recent years, we've seen a significant rationalization of the Mecca estate and a process that's continued this year with 2 further venue closures, bringing our estate size to around 50 clubs. We now have a more competitive business with clubs that offer stronger price boards due to higher liquidity. Revenue growth was 5%, all driven by an increase in the spend per head. Mainstage Bingo revenues were down 1% off the back of the investments we've made in additional prize money, key for the health of the business in the medium term. Gaming machine revenues grew by 9% and now account for 41% of overall Mecca revenues. As with Grosvenor, the largest cost in Mecca is employment costs, and they were up GBP 2.7 million in the year due to the impact of the National Living Wage and employers national insurance contributions. So like-for-like operating profit was down marginally to GBP 3.4 million, and it's largely driven by that higher employment costs. In Spain, there was further revenue and profit growth from our estate of 9 well-invested flagship Enracha venues. Revenue was up 9%, an acceleration on the growth seen in the first half. Within this, venue visits were up 3% and spend per head was up 6%. In the first half, we completed the refurbishment of our Seville venue, and that saw 4% growth in visits and 14% growth in revenue since launch. Our broader investment in product, service and environment has seen gaming machine revenues in Enracha grow 9%. Overall, underlying like-for-like operating profit grew 15% to GBP 10.8 million, and that's another year of record profitability for Enracha. Over the past 3 years, we've made selected low-cost investments to improve the gaming machine areas in our bingo clubs. In Mecca, we've called it Project Jackpot. Gaming machine areas present a significant opportunity in Mecca, but have been historically underinvested due to the primary focus on bingo. 25 venues have seen a total investment of around GBP 5.3 million. That's approximately GBP 200,000 per venue, and we've actioned 15 of these investments over the course of the last year. We've refurbished the gaming machine areas, improved the layouts, enhanced the lighting and introduced better audio quality. Venues that received the investment are delivering 14% higher staking than other venues and NGR is up 13%. It's delivering a return on investment of 65%, so paying back in around 1.5 years. Given the success of these investments and the need to further modernize the proposition, we've also invested in the gaming machines themselves. 850 Equinox cabinets from Light & Wonder were rolled out, replacing much older clarity machines. And a further 664 new machines from a mix of suppliers were also introduced across the whole estate. Looking forward on CapEx, as I mentioned, we're now in a phase of elevated investment. We expect the base level of capital expenditure throughout the plan to be in the range of GBP 25 million to GBP 30 million. And this covers investment in maintenance, infrastructure and the ongoing development of our digital platforms. In FY '26 and FY '27, total CapEx is expected to be GBP 60 million per annum with GBP 30 million of growth CapEx in venues, which includes the investment to take advantage of the casino reforms alongside further refurbishment and work in Grosvenor. A normalized capital expenditure of GBP 50 million is expected there profit improvement, roughly equivalent to ROCE of at least 35%. We first presented this slide at the Digital Capital Markets event in November '23, and it shows the cash generation we expect to deliver over the medium term. In the first stage of the plan, we were expecting to be broadly cash flow neutral. In fact, we've done much better than that due to the disciplined capital investment, improved profitability and improved working capital. The combined impact has delivered net free cash flow of GBP 55 million over 2 years. We've got 2 further years where CapEx will be at those elevated levels, but with continued improvements in profitability off the back of the investments we're making, we expect another 2 years of good cash generation. Thereafter, when CapEx has normalized and we're seeing material benefits from the casino reforms plus ongoing growth in digital, we expect cash generation to improve even further. With that, I'll hand you back to John.

Thanks, Richard. Right to strategic update and outlook a bit about sort of what's coming next. It's these 4 key areas of focus, which we believe deliver our pathway to operating profits of GBP 100 million plus. Not new news, sustained growth in the Grosvenor business, accelerating our digital growth, maximizing cash in our land-based bingo businesses and of course, the key reforms from the land-based casino and bingo sectors in the government's review of gambling legislation and regulation in the U.K. And that's all underpinned by investment in technology, very strong group-wide focus on safer gambling and a focus on our people and a culture of ensuring we always deliver great service, excitement and entertainment for our customers, which is the business that we're in. So in terms of sustained growth in the Grosvenor Casinos business, we've got a clear line of sight to an average net gaming revenue per week of over GBP 8 million before the revenue benefit of more gaming machines and sports betting this year. And at some point, hopefully, electronic payments also promised in the government's Gambling Act review. The key initiatives which are driving the growth include the investment we've been making in the quality of the gaming products, that's tables, roulette wheels, the table gaming management system, all importantly, electronic gaming terminals, you've seen that this morning and so on. We continue to invest in poker. A couple of weeks ago, we concluded the 2025 Goliath, which is the biggest poker tournament outside of Vegas with another record entry this year and a price pool of over GBP 2 million. One lucky winner walked away with GBP 316,000. Maybe not so lucky. We're continuing to invest in the quality of our facilities. The Vic Casino, which is very much our flagship and which we all colloquially call the Vic has seen a GBP 15 million refurbishment. We started works last October. We completed the refurbishment just a few weeks ago. We inevitably delivered quite a lot of disruption to customers during much of the year. Revenues fell just GBP 120,000 per week during the works, and that's a huge credit to all the team at the Vic. Customer reaction to the refurbished venue has been amazing. We expect the Vic to make considerable contribution towards a step up to GBP 8 million per week. Our approach to investment during the latter half of FY '24 and during '25 has been to ready some of our more important and competitively significant casinos for the land-based reforms. Richard mentioned Grosvenor Leicester. That was under refurbishment as we entered the year, and we completed during half 1. It provides a pretty good case study. It's in a strong competitive location in the city, hadn't had any investment for well over 10 years. We fully modernized it and doing so, prepared it for the casino reforms, which will enable it to host 80 gaming machines. Refurbishment also created a sportsbook, today, a sports viewing lounge. Hopefully, in a week or 2, it will become a sportsbook taking bets as soon as we get the all clear from the local authority. Visits have grown 10% since the refurbishment year-on-year. NGR has grown 19%. The investment was GBP 4 million, and we expect a payback within 30 months based upon the current performance, and that's before the impact of 80 machines rather than 20 machines. Every time I go to Leicester, all the customers want to talk about is when are we going to get more machines. So there we are. We've also readied a further 7 Grosvenor casinos in '24, '25 for the maximum allowable number of gaming machines given their floor space and more investments we made over the next 2 years as we learn about the reforms. We're in the hospitality business, obviously, and the relationship between our colleagues and our customers is absolutely central to Grosvenor's success. We've been running a cultural program called from Like to Love, and it continues to gain traction across the group. It's benefiting our customer NPS scores and our employee engagement levels with record engagement scores for Grosvenor Casinos in our most recent employee opinion survey, and we're very pleased with that. It's a fabulous business with a leading operator with 50 of the 111 casinos currently trading in the U.K. We've got the benefit of what is now only an emerging seamless cross-channel experience. We've got a strong management team in situ. We've got a culture focused on service, excitement, entertainment and very importantly, the protections we deliver to our customers. The estate was underinvested, but we're gradually dealing with that, and now we have the long-awaited land-based reforms. And this is what we expect to happen in regards to the reform. So in '24, '25, the Grosvenor estate of 50 casinos had an average of 1,367 gaming machines, generating revenue of GBP 102 million. The casino reforms enabling higher machine allocations for casinos licensed under the 68 Gaming Act, and that's 49 of our 50 casinos became law on the 1st of July and with the coming into force date of the 22nd of July. And the reforms apply to England and Wales, not to Scotland, and the legislation would need to be implemented by the Scottish Parliament, and that is not currently on the horizon. The legislation requires casinos to submit variation applications to the relevant local authority. And we submitted 38 applications on the first available date, which was the 22nd of July. And we've got 5 casinos in Scotland. There are 3 casinos in England, which are too small to receive additional gaming machines. And we've got 4 casinos in England where the development works, we would need development works before we could add any level of additional machines. So hence, 38 applications being made on the first available day. And the process of the local authorities takes 28 days. So we're hoping to be turning on our first additional gaming machines for customers around the middle of next week. Fingers crossed. Thereafter, we expect to be rolling out just over 850 gaming machines through this financial year, the majority of which we expect to be introduced during half 1. Subject to development, which includes structural works in our casinos to change physical layout to create more space, -- we expect to roll out a further 650 machines over the next 30 months. And that makes an additional 1,500 machines in total, which is an increase on the current estate of 110%. Now we've said in the past that we expect to get to an increase of 130% over time. That's still the case, but it will require the legislation to be passed in Scotland and plus additional development in the shape of extensions and relocations. Now, as I always say, not everyone who bets on sport plays in a casino, but just about every casino player also bets on sport, and we acquired -- purchased 356 sports betting terminals and expect to complete the installations across 38 casinos in line with the gaming machine installations. We will experiment with proper fully fledged sportsbooks in a few of our casinos starting with Leicester and Luton. Think of it as a very nice betting shop with great service and food and beverage. Space is clearly a constraint to do it everywhere right across the estate, but we intend offering sports betting wherever we possibly can as we think it will give us existing -- give existing customers more reasons to visit and broaden the appeal of casinos to a wider audience of consumers. Our digital business is on a journey towards delivering an increasingly rich and seamless cross-channel experience for our customers. And the scale of the business has been gradually increasing since the acquisition of the YoBingo business in Spain in 2018 and Stride Gaming in the U.K. in 2019. We set an expectation of growing revenue by 8% to 12% compound average growth over the medium term, and we've got a strong pipeline of developments to deliver that going forward. We've been modernizing the core platform to ensure we can develop, test and deploy new functionality features and products at speed. In this respect, we've got an important road map of developments ahead of us this year, including a new bonus engine, a new wallet and a new operator interface, which actually went live this week for the teams running our online services in real time. In the next couple of months, we'll be merging Mecca's venue-based apps. We've got a couple of those with our core Mecca Bingo app to deliver one single app experience for Mecca customers across both venues and digital. In Q3, we will launch a single membership for Mecca customers so that as a customer of Mecca brand, you're recognized regardless of channel. We're extending the footprint of cross-channel games within both Mecca and Grosvenor. We've launched something called Mega Money, which is a Friday night joint liquidity game, which is called in venue and streamed online and more live at Grosvenor table gaming opportunities from our bricks-and-mortar venues. And while our digital business grew 12% in the year to June in Spain, we were flat. And that followed several years of really strong growth. And the challenge in Spain has been the core bingo platform, which has lacked the capacity, the scalability to grow concurrent customer numbers during peak trading periods. We've been working on a new bingo platform. We're going to launch that in the next few weeks. And that provides much greater scale, bigger pools and therefore, bigger prizes. It's a critical development in getting the Yo Bingo business back into the double-digit growth rate that we've seen over recent years. And we're confident by the end of half 1, the business will be back in growth. A little drum roll for the next part. We've now successfully completed the homologation process in Portugal with the regulator giving our platform the all clear for launch. So we're now in the process of getting ready for a soft launch in the next -- in the coming days really as we gear up for a full customer launch later this half, and we'll be the first online bingo operator in Portugal. So the digital business now a material business. It's got strong management talent, good technology is making a significant contribution to our overall profitability and cash flows, and there's considerable further upside to be delivered as we build out that seamless and tailored cross-channel experience for our customers. Our approach to the bingo business right now is to maximize cash over the short to medium term. And that said, as you've heard, we've been making some investments where we're seeing rapid returns. And in addition to some further investments to machine areas and external decor and signings this year, we have a couple of investment trials of outdoor terraces and cashless interval games. We've been scaling electronic bingo. We're pushing that even further this year with an ambitious goal to take the share of bingo revenue played on tablets well beyond last year's 76% figure. In terms of the reforms, we've been awaiting the reforms in the Gambling Act review that were proposed for bingo, including the much needed change to the 80-20 rule, which revised just about the opposite mix of category B3 and C machines to that preferred by our customers. And we've also been waiting for a broadening of what constitutes bingo to enable side bets on the main-stage game, which provides customers with more chances to win. Those changes have been delayed as the government reviews the licensing regime for traditional bingo venues, but we're hopeful that we'll see this reform at some point during this financial year. Bingo very much needs help. It's recognized too by the government, and it needs help if it's to be kind of sustained at today's levels across the country. Mecca super well positioned for these reforms, 50 venues with increasingly strong price boards, giving great value to customers, registering amazingly high customer Net Promoter Scores and delivered by a highly engaged team of Mecca colleagues. And in Spain, we kind of continue to improve what is a terrific Enracha business, 2 further venue investments this year, nearly already nearing completion at a venue in Sabadell in Cataluna. So we believe the kind of path we're on and the progress we've already made and the runway of opportunity we've got before us creates a compelling investment case for the group. We've got market-leading positions in attractive markets. We've got the biggest brands in the land-based bingo and casino markets. We've got the benefit of strong cross-channel customer economics and in Grosvenor casino business with a licensing requirement, which creates a high barrier to entry. We've got an attractive customer proposition as a result of the renewal investment we've been making across our venues businesses, the complete renewal of our digital business on acquired and now increasingly modernized proprietary technology and with a very strong road map of investment opportunities, particularly this year with the legislative reforms for casinos in the U.K. Highly engaged and skilled workforce, group-wide record engagement scores this year of 8.3 out of 10 and not surprisingly delivering market-leading customer Net Promoter Scores and with considerable investment going into further enhancing the culture within our business. And with very clear growth drivers, a clear pathway to GBP 8 million net gaming revenue per week in Grosvenor, and that's before the land-based reforms, an expected 8% to 12% compound average growth rate in digital and the anticipated continued growth in a now well set Mecca and a well-polished Enracha estate in Spain. Plus a 62% increase in gaming machine numbers in Grosvenor this year with that extended to 110% increase by the end of 2027 calendar year. And with targeted investment to maximize shareholder value, a capital allocation policy with clear hurdle rates for capital investment and a progressive dividend policy. And we think all of that inevitably is delivering and will continue to deliver strong financial outcomes. double-digit revenue growth with growth in all businesses and strong profit conversion. We're on track to deliver GBP 100 million plus operating profit in the medium term. Cash generation is ahead of expectations, and it will continue to improve as operating profit grows and capital investment normalizes. Strong payback on investments. We're growing the return on capital employed, a strong balance sheet with a net cash position and with significant further opportunities for the group. And in our view, that's probably the most important of all. There is a lot more to come. Very briefly on current trading. Good momentum within the group continued into the early part of this year. We're 6 weeks in and NGR is growing at 9% over those 6 weeks. So pleased with that. And we're well placed to meet expectations in the year. Now we'll be holding a Capital Markets Day event at the newly refurbished VI on London's Ed Road on the morning of Wednesday, the 22nd of October. We had planned to hold it during the summer, but we thought we'd just delay it, hold it back until we've got some early insights into the casino reforms. That is all I wanted to say to questions. We're going to take questions from the room first, I think. So if you got a question, please raise your hand. We're going to mic to you. And if you could say your name so that I mean everybody knows I, if you could say your name so those joining online know who the question is from. And then what we're going to do if you've got questions online, please type them into the Q&A box. And we'll pick up any questions that are asked online if we haven't covered them in the room, I think, is the format we're going to operate to.

Ivor Jones from Peel Hunt. Three things. Mecca, what are the prospects? You talked about cash maximization. You spent nearly GBP 10 million on CapEx last year. When do we see the payback? Same thing really about Portugal. It's been in the background for so long. I've kind of forgotten what the prospects are. What's the market? What's rank's opportunity to get you into that market? Is that material? Should I even be asking that question? And then on Grosvenor, how can we talk about the unsatisfied demand? You've already delivered really strong double-digit revenue growth, would have been more without Vic being disrupted this year. Is that existing customers spending more? Where is the next leg of revenue growth going to come from? Is it more people being converted to being casino customers? So how should we think about that upside opportunity? Why don't you -- do we start with the Mecca payback?

Yes. So the Mecca business is not cash positive at the moment. So we're investing now because we believe that is the best route to cash maximization in the medium term. And we'll continue to invest over the course of the next few years. The investments we're making are relatively low-cost individual projects. So on average, kind of GBP 150,000 investment into our clubs, a little bit more in the gaming machine areas, but that's delivering rapid paybacks, as you've seen from the slide earlier, 65% return on capital employed. So my expectation over the next 2 to 3 years is we can get that business back into cash positive territory. So that's the kind of time frame that we're looking at. And that will coincide with double-digit operating profit in Mecca. That's a reasonable ambition to have. It's a bit harder than when we originally set that target because employment costs have increased dramatically, and that is the largest cost within the Mecca business. So it's gone back a little bit from where we originally anticipated, but the business is growing nicely. And the only way we're going to get there is to continue to grow the top line, hence, why we need the investment.

Richard thank you. And look, Mecca is a really important community asset, too. And we've been forced to close a lot of Mecca venues. We really don't want to close anymore. And keeping them open is all important to us because these -- as I say, they're really important community assets. Portugal, -- we've waited a long time to get to this point where we're going to go live. And -- but it's a very fair question, what do we expect? We look, year 1, we expect start-up. We will be incurring losses in the first year as we build the brand in Portugal inevitably. Portugal is quite a strong bingo country, but there's no bingo online operator. There are now 18 licensees in Portugal, we'll be the 19th when we receive our license in the coming days, hopefully. And we'll be the 19th. We'll be the only operator offering bingo in that market. So there's quite a bit of consumer education to be done. I remember that in Spain in the very early days, having launched the first sportsbook in Spain many, many, many moons ago. So I remember it very well. It takes a bit of time for the consumer to recognize and understand the game. But we think we'll build the liquidity fairly quickly and be able to deliver strong prices to the consumer very quickly in Portugal. So excited about the opportunity, but we'll incur some start-up losses this year entries. Will it be material in the next couple of years? We hope it will be a significant enough part of the international digital business to make it worth its while. And we'd like to then think from there, we're looking at some other territories, other jurisdictions for the Yo brand. Grosvenor, there is definitely unsatisfied demand. So I know this of my travels. Everywhere I go up down the country, customers ask me one question, when can we add more machines? I was in a casino in the Northeast a few weeks ago where we actually only opened at midday and by -- I was back of house talking to colleagues. And when I came out front of house, the casino had opened and it was 20 past 12 and 12 of the 20 machines are being used. I mean it was 20 past 12. Casino had been open 20 minutes. That is the extent of unsatisfied demand. So undoubtedly, the machine reforms much needed will satisfy more demand and will broaden the audience of people because gaming machines kind of anybody can pay everybody can, everybody wants to, people like to play gaming machines. It will definitely deliver unsatisfied demand. In terms of the move from now 7.3 to 8, I think that's about just giving better entertainment with a stronger product offering in nicer facilities to customers. It's a stronger proposition. It's a stronger offering than we've had in the Grosvenor business for many a year, and the customers are responding with their feet coming more often and enjoying the experience that we deliver for them. So I think there's a good way more to go.

It's Richard Stuber from Deutsche Bank, please. Can I have 3 questions as well. The first one is lots of press speculation about potential tax hikes in the autumn statement. Could you tell us what you're hearing, what your expectations are? And particularly, I guess you mentioned that bingo needs seem to be recognized by the government. Are there any other sort of sacred parts of gambling, which you think won't be touched? That's my first question. Second question is, obviously, you're putting all these new machines in. As you said to sort of IVA, there's definitely a demand for them, but are you doing anything proactively to sort of highlight the new machines opportunity so you can get the -- so you can sort of ramp up the utilization more quickly? And the final question is the GBP 100 million EBIT target. Now you have a bit more sort of visibility around land-based reforms. How quickly do you think you can get to that GBP 100 million number?

I'm definitely going to let Richard answer the first one -- the last one of those 3 because I'll give you the wrong answer, Richard. I'll be far more optimistic. So let me start with the tax point. There is lots of coverage for tax as we all know, the recent kind of recent weeks, particularly recent days. So the way I describe our business is we entertain like millions of people, which is wonderful. We employ a huge number of people. We employ 7,800 people across the Rank Group, which for a company with the relative size of profitability, that's an enormous number of people that we employ. And we pay a lot of tax. I mean they are the 3 things that this group does. We pay an awful lot of tax. So if I look at the profit after tax number for the year just gone of GBP 44.6 million in the year, Rank Group paid GBP 189 million in taxes. And that's corporate gaming tax, and employer national insurance. I've included their local taxes in that number, so business rates and the like, but taxes that we pay. So in a sense, for every GBP 5 we generate, we're paying GBP 4 in rough simple math, we're paying GBP 4 in tax. So that's what we are. We employ a lot of people. We entertain a lot of people, and we pay a lot of tax. That's the business we're in. But you can see in those mathematics that the margins for tax movement are not that significant. I don't mown about, by the way, the taxes that we pay. That's the business that we're in. That's the business that we've always been in. So I'm not ming about the tax rates we pay. But I think the margins for tax increases are not very significant and clearly run the risk of moving companies that are profitable to being unprofitable and unprofitable businesses don't last. and that creates less competition in the market and less competition means a worse deal for the consumer. And I think that is well recognized by the Treasury, by the way. So I think you've got to kind of separate the views of some think tanks, which were the same views of those think tanks before last year's budget and maybe even the year before. And you've got to separate that from actually what the treasury is doing. What the treasury is doing is consulting on remote gambling taxes. And there are 3 remote gambling taxes that I'm proposing to simplify them into remote betting and gaming duty rather than the 3 taxes you know. And we've put a full submission into the treasury and wait and see what the outcome is. I mean our preference would be from a group perspective, clearly, I would prefer for the status quo to prevail and for the online taxes not to be harmonized into one tax would be my strong preference. Why? Because -- actually, I say that from a materiality point of view, we're not a very big sports operator. We've launched a new sports book, by the way, in the last week, which is fabulous, you should take a look. And -- but leaving that aside, it's not a material part of the group. So if -- and let's assume treasury were to go down the road of delivering online tax rate -- online tax and one online tax rate, and we got to assume it will harmonize up to 20 rather than down to 15%, which is the current rate for sports betting. If that were to happen, then the materiality for the group for year commencing April 26 would be about GBP 1 million in operating profit. So not that material given that sports is not a terribly significant part of our offering today. But we'd like to compete more effectively in sports over time is clearly what we'd like to do. And the higher the tax rate goes, the more difficult it is for anybody to compete with the very, very large players in the market. And that impacts the consumer ultimately. That was such a long answer. It what next one was. Incentivizing machines. Incentivized machines, look, I -- we will be running quite a lot of activity inevitably to advise customers that the machine offer in Grosvenor Casinos has changed. It will be done locally, lots of CRM activity inevitably. So we've got a campaign program lined up. And we will turn the machine on and it will work. However, I mean, my view is I turn the marketing machine on, no doubt will work. I think it will work anyway. I think that the consumers have long recognized that there's not insufficient choice for the on gaming machines in casinos. And once there is more choice, they will quickly recognize it. And I think -- yes, I think supply will better meet demand going forward, and that's all important. And stop me being optimistic about when we get to 100 million plus.

So I think the great thing is we've had 2 years' worth of good profit improvement. But the fantastic thing from our perspective is that we see lots of financial and strategic headway over the course of the next few years, obviously supported by the casino reforms. I think we give quite a lot of guidance around our kind of future prospects. So I'm probably not going to give you an exact timing because there's lots of information we give you. So you have one piece where you can fill in the gaps yourself. But the analysts that have updated for the machine reforms, I think have got us in making around GBP 100 million as a consensus by FY '28.

A couple of questions. One on current trading. Could you maybe sort of update on where we are with the performance of London at the start of the year given the relaunch or completion of the refurb of the Vic? And secondly, very encouraging to see that app penetration in the cross-channel brands has gone from 13% to 30%. Can you maybe sort of give any steer on where you see KPIs between app users and non-app users?

Okay. Thank you, Greg. Sorry, B. Thank you for the questions. A bit mixed actually on the app numbers, and we are slowly kind of better understanding it, I think, because it's still pretty new world. And we're not pushing the apps as hard as we might. The Grosvenor app is generating higher spend per customer on app from mobile web and desktop actually. So for Grosvenor, clearly significant upside benefit. Not quite seeing the same coming through for Mecca, and we are trying to better understand why that is the case. A bit of it is margin related and some big wins have an impact on it, but it's not quite the same dynamic with Mecca. But -- so we're just kind of understanding that a little bit more. We've got more consumer research going on currently. And we just kind of understand that before we pressed the accelerator on encouraging more mobile web users to transfer across to the Mecca app. So slowly, but surely, we're sort of understanding that. But really pleased with where we are. I mean our old apps were not good enough. Our new apps built in-house on proprietary technology are so much better than the outsourced apps we've offered in previous years. It's taken us a while to get there. We had to -- the first thing was to bring proprietary technology in-house, but now very much focused on the strength of those apps. And the move -- the Mecca move to having one app for both venues and our digital business. I mean I talked about it briefly earlier. You can see the materiality when all of our -- I mean, our venues customers use the app. It's what they use to get vouchers and promotions -- they use it to buy food and beverage within the venue. They use it to order tickets to order a Max tablet on our big money weekends to make sure that they've got a Max tablet when they come and play. So they're used to using the app that we offer. And what we're doing is bringing that together with mecobingo.com to one single app for all customers. And we think that will be quite a material breakthrough in terms of creating that cross-channel experience for the customer. In terms of current trading, we're really pleased with the 9%. It's a good start to the year. London, I think London is like 1 week behind this summer from last summer. I can't explain why it is. But if I look at the metrics and I look -- we look every week at who's visiting and who's not, we see the visit numbers and we see the drop numbers by nationality actually, week in, week out. And it feels like it's just 1 week behind last year. I don't really know why last year, Paris Olympics, maybe a few more customers using London as their base last year than is the case this year, I can't really explain it. But London is pretty positive, nonetheless. And the Vic is very positive. So we're just a few weeks in, but we're very excited about the prospects for the Vic. And as the summer picks up now as we get through this month, I think the Vic is going to be super busy. It has been in the first few weeks of opening, but one swallow and all that doesn't make a summer. So a few more weeks to go under the bridge before we celebrate too much, but customer reaction to the new Vic is extraordinary. I the old Vic and the new Vic. I have to tell you there was a lot of drama in between, we are. Have we got any more questions?

So there are 2 questions online, both of which from David Brohan of Goodbody. The first question reads, how should we think about the cannibalization risk of electronic gaming and table gaming from the rollout of new gaming machines? And the second question, can you please give a sense on per machine revenue expectations from the new sports betting terminals or how significant the opportunity of sports may be?

I don't see there being a terribly material substitution from new gaming machines relative to electronic table gaming. I don't think that's that significant. They are largely speaking, not entirely, but largely speaking, different players. They appeal to a slightly different audience in truth. So I don't -- there clearly will be an element of substitution from machine revenues from other products given that if I walk into a casino tonight and I've got money in my pocket and I want to play and there isn't a gaming machine available for me to play on, then I might well put my money somewhere else. So that's just an inevitability. But I don't think they are directly substitutional other than in that regard. So I don't think it will be that material, but we'll find out in the fullness of time. The sports betting, we just don't know. I'd like to know. We don't know today. We are seeing in -- we've got one venue, which is Luton, which offers sports betting. It's been -- it's an improving offering to the consumer. It's getting better. It's getting stronger week by week, and we're learning a lot as we go. I would say we've now got to a point where it's a very good betting shop like I'm thinking in the economics of a licensed betting office. We've now got a very good betting shop at Luton. I'd like it to be better than just a very good betting shop, but we're not quite there yet. So we've got further to go. And we will learn a lot more when we've got sports in a larger range of outlets, a larger range of casinos than just Grosvenor Luton. But we've made a good start there. I'm pleased with the numbers.

Thank you, John. There are no further questions online.

Great. If there's nothing further, I'm going to draw stumps. Many thanks for coming this morning. It's lovely to see everybody. Thanks to everybody joining us online. And as I say Capital Markets Day event 22nd of October, I think we're going to start at 10 in the morning. And hopefully, by then, we'll have some proper numbers to talk to you about the performance of new machines across the estate, which we're very excited about. Many thanks again.