Five things we learned from Rank’s financial results

Rank Group announced a 55% year-on-year drop in net gaming revenue for the second half of 2020, due in part to the extended closure of its venues-based business, which accounts for 78% of the operator’s total revenue, as part of coronavirus lockdown measures.

Speaking about the impact of the pandemic on the business, Rank Group CEO John O’Reilly said the London-listed operator had felt a “seismic impact” which had led to challenging times and had the potential to do so for the next year.

Here are five things we learned from the full-year figures through O’Reilly’s exclusive chat with EGR Intel and his Q&A session with financial analysts.

A plan for all seasons

Rank Group venues were closed for 45% of the firm’s available operating days during 2020, a sizeable chunk of the year which undoubtedly played its part in cutting revenue to the core. When discussing the potential for extended closures, O’Reilly stressed his confidence in the UK government’s rollout of Covid-19 vaccines, stating his belief that Rank could weather the immediate storm.

“We’re in reasonable shape. We undertook the share issue in November and we’ve got enough cash from that and from cash management measures to see us through the next six months of closures,” O’Reilly explained.

“We could survive July but if we get through to August and September, we’re going to have to take further mitigating actions. The reality is we’re losing £15m a month from these closures, that’s the negative net cashflow for every month. If we’re closed for longer, we need to take mitigating actions but we know what these will be,” he added.

Despite the forward planning, Rank has admitted that its venues business could shrink to achieve just 70% of its pre-Covid levels through to 2022, so while there could be an immediate benefit to reopening, the impact could be felt for years to come.

Finding its Stride

With the loss of its venues business, the pressure on Rank’s digital business to deliver and plug the gaps has been profound. Key to the company’s digital transformation strategy is the integration of the Stride business, first acquired in November 2019 for £115m. Stride Gaming brand revenue dropped by 14% during the second half of 2020, with Rank and O’Reilly citing the final impact of harmonising safer gambling measures across the Stride brands in line with Rank’s own standards. “That caught us on the downside, but the upside has been that we’ve got quite a good platform for growth for the group,” O’Reilly told EGR.

Rank successfully migrated the first of the Stride brands, Bella Casino, onto the platform in November, and while the smaller brand may not have the player database of its sister brands Grosvenor and Mecca, the Rank CEO hailed a crucial milestone for the business.

“The important part of that is the middleware link between the platform and the front-end of Bella, which is a replication of the work we need to do for Mecca and for Grosvenor. To that extent the code being complete for Bella ticks off a lot of the work we need to do from Mecca and Grosvenor.

“A lot of the hard yards have been done. There’s still more code to write, there’s still more integration work to do, but the big piece of work for us is really around performance testing. Clearly the integration of Mecca will add significantly more load to the platform than anything it’s ever experienced in the past,” he added.

Migrations of Rank’s two flagship digital brands, Mecca and Grosvenor, to the Stride proprietary technology platform is set to take place in H2 2020/21 and H1 2021/22 respectively.

Shuffling the deck

An interesting personnel update at Rank came with the news that Rank Interactive MD Eitan Boyd, who previously served as CEO of Stride Gaming before the acquisition of the business, would move to a director of innovation role. Details were not given as to why this occurred, but O’Reilly later affirmed his support for the former Stride chief.

“It’s not that we don’t have lots of people who have similar traits but Eitan is particularly innovative in his approach. I think the whole business benefits from Eitan being part of it,” O’Reilly told EGR.

“We’ve moved Eitan from a role where he was focused on the day-to-day delivery of the Rank Interactive business to one where he’s got a broader group wide role focused on innovation and new growth.

“We timed it for completion of the first stage of the migration, which needed Eitan’s focus, so once we successfully migrated the Bella brand, a lot of the hard yards were completed and it was the right time to free up Eitan to have more of a roaming role on new growth for the group,” he added.

O’Reilly for his part said he was happy to take on the dual role while a replacement was appointed, drawing on his prior experiences at Ladbrokes and Coral.

Affordability

Affordability has become a hot topic in UK gambling, no more so than in Rank where the group’s results revealed the emergence of new stringent measures targeting customers, which have affected digital revenue.

“One in four of our customers, and particularly our active highest-staking customers, now have deposit limits imposed. We’ve taken a tough position,” O’Reilly explained.

“In Grosvenor, active customers grew 13% in H2, but the average revenue per customer was down 21% from £204 to £162. In Mecca, active customers grew 36% in the half, but the revenue per customer was down 28% from £166 to £120.

“That’s not to suggest that the customers for whom we’ve applied restrictions based upon affordability estimates have previously been at risk of problem gambling.

“The reality is the vast majority of customers, indeed around 90% of all customers, are simply not prepared to prove their level of affordability,” he added.

With affordability checks potentially coming down the pipe in the 2005 UK Gambling Act review, it seems Rank is attempting to get ahead of the regulatory tidal wave.

Transforming fortunes

Planning ahead was one of the key themes of Rank’s H2 2020 financial results, no more so when the group unveiled the latest phase of its three-year digital transformation plan. Transformation 2.0 builds on the prior plan introducing seven new strategies across the firm’s venue and online businesses.

Key online updates included the introduction of joint liquidity across Mecca venues and online, as well as the development and enhancement of sports betting offerings across the Grosvenor venues business.

The operator has also committed to making strides into omni-channel via a new brand, Vic.com, which it claimed would introduce a “more rounded omni-channel experience” for Rank’s casino customers.

Rank has said it will reduce friction in customer interaction, particularly in digital, through more effective use of player data to assess risk in real time, while launching functionality that allows gaming machine customers to set loss and time limits across Grosvenor’s casinos.

The aforementioned migrations of the Mecca and Grosvenor brands onto Stride is also a key part of transformation 2.0, with Rank committing to embark on a programme of product additions and enhancements across the full suite of its brands.

Finally, Rank has pledged to enhance the CRM capabilities of its Spanish-based Yo! brands, as well as expand the brand into the Portuguese market.