THE RANK GROUP PLC Entertaining people The Rank Group Plc Annual Report and Financial Statements 2010 CONTENTS Group overview Our businesses IFC Our markets IFC Our performance 1 Entertainment – it’s Entertaining people since 1937 2 Chairman’s statement 3 something our people have been doing for Business review Chief executive’s review 5 almost three-quarters – State of play 7 of a century. – Strategic overview 9 Operating review 14 – Bingo 14 – Casino 20 See overleaf for an overview – Remote gaming and betting 27 of our businesses Operating responsibly 30 Finance review 34 Tax fact file 38 Governance Board of directors 42 Corporate governance 44 Remuneration report 56 Statutory reports and financial statements Independent auditors’ report 66 Group income statement 67 Group statement of comprehensive income 68 Balance sheets 69 Statements of changes in equity 70 Statements of cash flow 71 Notes to the financial statements 72 Other information Five year review 118 Shareholder information 119 Our games 120 Glossary IBC The Group overview, Business review and Governance sections make up the Directors’ Report in accordance with the Companies Act 2006. Directors’ report: Group overview OUR BUSINESSES Rank is a leading European gaming-based entertainment company, headquartered in Great Britain and listed on the London Stock Exchange. Mecca Bingo Top Rank España Grosvenor Casinos Rank Interactive Mecca Bingo provides Top Rank España delivers Grosvenor Casinos provides Rank Interactive distributes social, community-focused gaming-based entertainment entertainment based around and markets Rank’s brands gaming-based entertainment to the Spanish market. casino table games and via remote (online and in more than one hundred high prize gaming machines mobile) media, principally venues across Great Britain. in venues across Great Britain to customers in Great Britain. The brand holds particular and in Belgium. The brand appeal for women. is most popular with male customers but is becoming increasingly attractive to women too. Revenue* Revenue Revenue* Revenue* £234.5m £37.0m £238.6m £57.7m Operating profit** Operating profit** Operating profit** Operating profit £29.7m £6.8m £36.0m £7.9m Market positions Market positions Market positions Market positions – 103 licensed bingo clubs – 11 licensed bingo clubs in – 35*** licensed casinos in – meccabingo.com is one of the in Great Britain Madrid, Catalonia, Andalucia Great Britain most popular online bingo and Galicia brands in Great Britain – Headquartered in – 2 licensed casinos in Belgium Maidenhead, England – Headquartered in – Based in Alderney, – Headquartered in Barcelona, Spain Channel Islands Maidenhead, England Customer numbers Customer numbers Customer numbers Customer numbers 911,000 331,000 1,131,000 261,000 Key achievements Key achievements Key achievements Key achievements – Increase in customers – Revenue and profit growth in – Exceeded one million – Sustained revenue growth difficult market conditions customers for first time from meccabingo.com – Strong improvement in customer satisfaction score – Increase in customers and – Extensive programme – Increase in customers customer visits of estate modernisation – Growth in customer referrals – Preparation for launch to meccabingo.com – Significant growth in revenue to Spanish market in 2011 and operating profit * Before adjustment for the free bets, promotions and customer bonuses. ** Before exceptional items. *** At 31 December 2010, Grosvenor operated 35 casino venues in Great Britain, incorporating 36 operating licences. OUR MARKETS Rank entertains across a portfolio of leisure venues and via online and mobile media. OUR VENUES Great Britain Mecca Bingo: Grosvenor Casinos: Key: Mecca Bingo: 103 clubs 35 casinos* Grosvenor Casinos: 8,157 employees Spain Top Rank España: 11 clubs 590 employees Belgium Grosvenor Casinos: 2 clubs 190 employees * 35 venues incorporating 36 licences. Employee numbers based on averages for 2010. OUR BRANDS Gaming-based entertainment, delivered across multiple channels We have developed a portfolio of brands to meet the gaming and entertainment needs of a wide range of customers and a variety of occasions. Mecca Bingo Grosvenor Casinos Blue Square Top Rank España Venues – Online – – Distribution Mobile Directors’ report: Group overview OUR PERFORMANCE During 2010, Rank recorded another year of growth in adjusted earnings per share, driven by continued operational improvements and further debt reduction. Revenue* (£m) £567.8m Operating profit** (£m) £62.0m 07 534.4 07 68.3 08 522.2 08 60.3 09 540.0 09 58.0 10 567.8 10 62.0 Statutory revenue (£m) £544.5m EBITDA*** (£m) £92.3m 07 511.0 07 96.8 08 505.4 08 86.6 09 520.5 09 83.9 10 544.5 10 92.3 Adjusted profit before tax (£m)**** £55.2m Net debt (£m) £123.4m 07 46.2 07 316.9 08 40.5 08 226.5 09 48.5 09 186.8 10 55.2 10 123.4 Adjusted earnings per share (p) 10.2p Dividend per share (p) 2.4p 07 7.4 07 2.0 08 7.3 08 Nil 09 8.9 09 1.35 10 10.2 10 2.4 Net promoter score (%) 38.0% Operating margin (%) 10.9% 09 37.0 07 12.8 10 38.0 08 11.5 Net promoter score measures a customer’s propensity to recommend our brands. 09 10.7 It is calculated by subtracting negative scores from positive scores with the difference expressed as a percentage of the whole. 10 10.9 * Before adjustment for free bets, promotions and customer bonuses. **** Adjusted profit before taxation is calculated by adjusting profit from continuing ** Before exceptional items. operations before taxation to exclude exceptional items, the unwinding of discount *** Group EBITDA before exceptional items is Group operating profit before depreciation in disposal provisions, other financial gains or losses and the amortisation of the equity and amortisation. component of the convertible bond. Note: All references in this report to ‘like-for-like’ exclude club openings and closures as well as changes to gaming taxation. The Rank Group Plc: Annual report and financial statements 2010 1 Directors’ report: Group overview ENTERTAINING PEOPLE SINCE 1937 The iconic Rank ‘gong man’ symbolises the spirit of entertainment. In 2011, as we prepare to celebrate our 75th birthday, the desire to entertain is the common impulse that unites all of our people. Entertaining history Entertaining brands The Rank Organisation was established in 1937 by J Arthur During its history, Rank has presided over some of the world’s Rank (later Lord Rank) in Britain’s motion pictures industry best known entertainment brands, from the globally cool Hard and in time expanded into other forms of entertainment. Rock Café and Hard Rock Casino to enduring British favourites Over the years, Rank has been involved in a wide variety like Odeon Cinemas and Butlin’s Holiday Camps. As a major of leisure retail and manufacturing activities, including cinemas, player in the British film industry from the 1930s to the 1970s, holiday camps, theme parks, pubs, clubs, restaurants, hotels, Rank has been associated with the development of a number photocopier manufacture, film production and distribution of world famous third-party brands, including the ‘James Bond’ and in-home entertainment (TV, radio and popular music). and ‘Carry On’ motion picture franchises. The desire to entertain beats through Rank’s long and varied Even today, several decades after the Rank Organisation made corporate history. It is felt as keenly today in our Mecca Bingo, its final movie, the Group’s ‘gong-man’ logo is among the most Grosvenor Casinos, Top Rank España and Blue Square brands as evocative images of entertainment in Great Britain. it was 74 years ago. The development of loved and trusted brands remains central to Rank’s approach to entertaining its customers. Entertaining games Entertaining people Rank moved into the gaming industry in 1961, when a number Throughout almost three-quarters of a century, our people have of its cinemas started providing games of bingo (which had just sought to fulfil the human need for entertainment. been legalised under the 1960 Betting and Gaming Act) between The roll-call of those who have brought joy to our lives under screenings. The growing popularity of the game and a nationwide the Rank name includes film directors Sir David Lean, Michael decline in the level of cinema attendances prompted the company Powell and Sir Alfred Hitchcock; and actors and movie stars, Sir to shift the focus of operations in many clubs from movies to Laurence Olivier, Sir Michael Caine and Kenneth Williams. The bingo and in time to establish dedicated bingo clubs under the Beatles and Bob Dylan were amongst the artists who performed at Top Rank brand (which was replaced by Mecca Bingo following Rank venues in the 1960s; whilst The Who and Bruce Springsteen its acquisition in 1990). are just two of the internationally acclaimed acts who helped Hard Having established itself as one of the largest bingo businesses Rock entertain the world, under Rank’s ownership of the brand. in Great Britain, Rank moved into the casinos sector in 1990; and We remain proud of our heritage and true to our founding in 2003 the company invested in the growing remote gaming spirit of entertainment. and betting sector via the acquisition of Blue Square. Following the sale of the Hard Rock brand in 2007, Rank emerged as a focused gaming-based entertainment business. 2 The Rank Group Plc: Annual report and financial statements 2010 Directors’ report: Chairman’s statement OUR PROGRESS OVER THE YEAR “ Our most important strength is the ability of our people to bring enjoyment to others. At Rank we have been doing this for nearly three-quarters of a century.” Peter Johnson chairman 24 February 2011 During 2010, Rank recorded a further year of Our performance – customers progress, delivering strong growth in earnings Our commercial performance is predicated on our ability to and dividend per share through improved delight and to entertain the 2.5 million customers that we serve across our businesses.