30th Aug 2007 07:01
Rank Group PLC30 August 2007 30 August 2007 The Rank Group Plc Interim Results for the six months ended 30 June 2007 Financial highlights • Revenue from continuing operations of £284.6m (2006: £277.3m) • Group operating profit before exceptional items from continuing operations of £47.9m (2006: £38.0m) • Adjusted profit before tax* of £37.3m (2006: £21.9m); profit before tax from continuing operations of £49.7m (2006: £1.1m) • Adjusted earnings per share** of 5.2p (2006: 2.4p) • Basic earnings per share of 72.4p (2006: 1.4p) • Interim dividend per share of 2.0p (2006: 2.0p) • Net debt of £292.5m (£447.2m at 31 December 2006) Operating highlights • Operating profit growth achieved in bingo, casino and interactive • Cost saving initiatives deliver improvement in group operating margin • UK businesses prepared for implementation of Gambling Act 2005 (from 1 September 2007) • $965m (£502m) Hard Rock disposal completed; £353m returned to shareholders via 65.0p per share special dividend Ian Burke, chief executive of the Rank Group, said: "We have enjoyed a positivestart to our first year as a focused gaming business. The group has generated astrong increase in operating profit as a result of the actions taken to growrevenues and to reduce costs. "We have undertaken a significant amount of work to prepare Mecca Bingo for thechallenge of the smoking ban in England, which took effect on 1 July 2007. Webelieve that the actions we have taken will help to stabilise the business inthe short term but we are also focused on the longer term modernisation andsubsequent growth of Mecca Bingo. "In Grosvenor Casinos we have made good progress, despite having to absorb asubstantial and unbudgeted rise in casino gaming duty as a result of theGovernment's 2007 Budget. Our aim is to broaden the appeal of our casinos forthe mainstream leisure market through the modernisation and growth of our clubsportfolio, the development of our gaming and non-gaming products and through afocus on customer recruitment and customer service. "Our interactive business, Blue Square, has delivered another strong rise inoperating profit. We are investing in the future growth of this business byapplying more resource to marketing in the UK and by seeking imaginative meansto open up new markets. "At a group level we have been focused on preparing all of our businesses forthe introduction of the new Gambling Act, to make the most of commercialopportunities and to adapt procedures to ensure that we maintain our highstandards of responsible operation. In addition we have been active in makingrepresentations to Government regarding the fairness and openness of thetaxation of our businesses. "The UK gambling market has entered a dynamic phase in its development, drivenby changes in social attitudes, the modernisation of gambling laws, advances intechnology and investment in modern licensed gaming premises. Whilst continuingto address the near term challenges facing our businesses, we remain focused onthe long term growth opportunities within gaming." * adjusted profit is calculated by excluding discontinued operations,exceptional items, foreign exchange on inter-company balances including hedging,amortisation of interest relating to the equity component of the convertiblebond and net return on defined benefit pension asset. ** adjusted earnings per share is calculated by taking basic earnings (excludingdiscontinued operations, exceptional items, foreign exchange on inter-companybalances including hedging, amortisation of interest relating to the equitycomponent of the convertible bond, net return on defined benefit pension assetand the tax adjustment in respect of the deferred tax rate change) divided bythe weighted average number of ordinary shares. Enquiries The Rank Group PlcDan Waugh, Director of Investor Relations Tel: 01628 504053 M: CommunicationsNick Fox Tel: 020 7153 1540James Hill Tel: 020 7153 1559 Photographs available from www.newscast.co.uk and www.rank.com Analyst meeting, webcast and conference call details: Thursday 30 August 2007There will be an analyst meeting at Merrill Lynch Financial Centre, 2 KingEdward Street, London, EC1A 1HQ, starting at 9.30am. There will be asimultaneous webcast and dial-in of the meeting. To register for the live webcast, please pre-register for access by visiting theGroup website (www.rank.com). A copy of the webcast and slide presentation givenat the meeting will be available on the Group's website later today. The webcastwill be available for a period of six months. Conference Call Details: Thursday 30 August 9.20am International +44 (0) 1452 542 300 UK Local 0845 245 3471 USA Free 1866 220 1452 Conference ID 14414833 9.30am Meeting starts A replay will be made available for seven days on International +44 (0) 1452550000 / UK Local 0845 245 5205 / USA Free 1 866 247 4222 (passcode 14414833#) Forward-looking statements. This announcement includes 'forward-lookingstatements'. These statements contain the words "anticipate", "believe","intend", "estimate", "expect" and words of similar meaning. All statements,other than statements of historical facts included in this announcement,including, without limitation, those regarding the Company's financial position,business strategy, plans and objectives of management for future operations(including development plans and objectives relating to the Company's productsand services) are forward-looking statements that are based on currentexpectations. Such forward looking statements involve known and unknown risks,uncertainties and other important factors that could cause the actual results,performance, achievements or financial position of the Company to be materiallydifferent from future results, performance, achievements or financial positionexpressed or implied by such forward-looking statements. Such forward-lookingstatements are based on numerous assumptions regarding the Company's operatingperformance, present and future business strategies, and the environment inwhich the Company will operate in the future. These forward-looking statementsspeak only as at the date of this announcement. Subject to the Listing Rules ofthe UK Listing Authority, the Company expressly disclaims any obligation orundertaking, to disseminate any updates or revisions to any forward-lookingstatements, contained herein to reflect any change in the Company'sexpectations, with regard thereto or any change in events, conditions orcircumstances on which any such statement is based. Past performance cannot berelied upon as a guide to future performance. CHIEF EXECUTIVE'S REVIEW INTRODUCTION Following the disposals of US Holidays in December 2006 and of Hard Rock inMarch 2007, we have restated our 2006 interim results. A restatement of groupfull year profits for 2006, which also reflects changes in accounting policy, iscontained within the notes to this statement. In addition we have restated a number of key performance indicators. Goingforward, we will report admissions and spend per head for Mecca Bingo, Top RankEspana and Grosvenor Casinos on a like-for-like basis (which excludes clubclosures, openings and relocations), which we believe more accurately reflectsthe underlying performance of our businesses. In our disclosure on our UK casinos we have consolidated the 'London Upper' and'London Mainstream' segments as a consequence of the sale of our high endClermont Club in 2006. Accordingly, we have restated admissions and spend perhead for our London casinos in 2006 to provide comparability. SUMMARY OF RESULTS - CONTINUING OPERATIONS Revenue from continuing operations during the first six months of 2007 increasedby 2.6% to £284.6m against the comparable period in 2006. Group operating profitrose by 26.1% to £47.9m with the cost saving initiatives introduced in 2006helping to generate a substantial improvement in operating margin. Our interactive gaming business, Blue Square delivered growth in operatingprofit before exceptional items of 77.4% to £5.5m on a 40.9% increase inrevenue. Mecca Bingo delivered growth in like-for-like revenue but operating profitdeclined slightly with a £4.0m increase in lease costs (arising from last year'ssale and leaseback transaction) off-setting the cost saving measures introducedin 2006. Top Rank Espana shows good signs of recovering from the introductionlast year of a partial ban on smoking, with operating profit returning to nearpre-ban levels. Grosvenor Casinos generated a modest improvement in operating profit on goodlike-for-like revenue growth. This represents a highly creditable performancegiven the need to absorb £1.6m of additional lease costs (arising from lastyear's sale and leaseback transaction) and a £1.7m unbudgeted increase in casinogaming duty. We are delivering the cost savings outlined at the time of our interim resultsin 2006, with gaming shared service costs falling to £10.2m and with groupcentral costs almost halving to £4.5m. STRATEGIC PRIORITIES Our priorities over the course of the last 18 months have been to meet theimmediate challenges facing our businesses, while maintaining focus on thelonger term value creation opportunities within the gaming market. I am pleased with the vigour that our businesses have displayed in responding tothe near-term challenges, particularly with regard to the efforts made to adaptour Mecca Bingo clubs for the UK-wide introduction of smoking bans and inpreparing all of our UK operations for the full implementation of the GamblingAct 2005 ("2005 Act"). Our immediate priority is to generate sustainable growth in profits byincreasing our base of active customers across each of our businesses. We arenow reaching out to a broader range of customers through brand and productdevelopment, more visible and effective marketing, heightened and moreconsistent levels of service and by adding scale to widen distribution. MANAGING THE SMOKING BAN AND LOSS OF SECTION 21 TERMINALS During the course of the last 18 months, smoking in enclosed public places hasbeen progressively banned throughout the UK, with legislation taking effect inScotland (26 March 2006), Wales (2 April 2007) and England (1 July 2007). Theintroduction of these bans has had a discernible effect on revenue within our UKbingo clubs, due to the relatively high incidence of smoking amongst ourcustomers and the structured nature of bingo gameplay. In our Mecca Bingo clubs in Scotland we saw a 17% fall in like-for-like revenueduring the 12 month period immediately following the ban. Between theanniversary of the ban's introduction and 26 August 2007 we have generated a3.9% improvement in revenue from our Scottish clubs, delivering growth in eachof the last four months. Our experience in Scotland in 2006 has helped us to prepare our bingo clubs inWales and England. Our efforts have focused on preserving an enjoyableexperience for all of our customers, whether they smoke or not. This hasincluded the development of outside sheltered areas across the majority of ourclubs, the extension of electronic bingo, the more widespread use of high prizelinked interval games and improvements in employee and customer communication. In the period between the introduction of the smoking ban on 1 July 2007 and 26August 2007, we have experienced a 4.4% decline in like-for-like revenue fromour bingo clubs in England, although this performance has benefited from morefavourable weather and a higher level of promotional activity than in thecomparable weeks in 2006. Our three clubs in Wales have experienced a 6.1%decline in revenue between the introduction of their ban on 2 April 2007 and 26August 2007. While we are encouraged that our clubs in Wales and England are performingbetter in relative terms than our Scottish clubs did during the same period in2006, we believe that we need to experience a full 12 months' trading before wecan draw any hard conclusions as to the success of our actions to mitigate theeffects of the smoking ban. From 1 September 2007, under the 2005 Act, all gaming machines in the UK will bereclassified according to stake limits, prize limits and locations. As aconsequence of this we will no longer be able to offer Section 21 terminals. In Mecca Bingo this will result in a reduction in the number of higher jackpot(up to £500) machines we are able to offer, where the limit is four per club,but an increase in lower prize (up to £35) machines, where local restrictionshave now been lifted. In Grosvenor Casinos there will be a net reduction in thetotal number of machines we are able to offer, due to the limit of 20 machinesper club. We expect these changes to cause some disruption to our business in theshort-term but plan to overcome this through investment in the expansion andimprovement of our electronic gaming products. PORTFOLIO DEVELOPMENT Mecca Bingo During the first six months of the year we have sustained our efforts to improvethe quality of our Mecca Bingo clubs portfolio. We have invested in a number of major refurbishment projects, including theupgrading of our machine gaming areas in several clubs and the provision ofsheltered outside enclosures in the majority of our clubs. We have continued to improve the quality of the portfolio through activemanagement and in the first half of 2007 we closed ten clubs. Typically theseclubs presented limited scope for modernisation or adaptation for the smokingban and a small number offered greater value under alternative use. Of these,five freehold properties have been marketed for sale. At 30 June 2007 we hadcompleted the disposals of the properties in Hounslow, Fulham Broadway andSwansea for an aggregate cash consideration of £13.1m, and have reported a £9.1mprofit on disposal (net of associated closure costs). The combined proceeds fromall of these property disposals will be used for reinvestment in the business. During the first half of 2008 we expect to open a new Mecca Bingo club alongsidethe new G Casino in Thanet, Kent. We have identified a number of additionallocations where we wish to operate and expect to open a further four new clubs,including relocations, by the end of the decade. Grosvenor Casinos In Grosvenor Casinos we are engaged in a major programme to modernise and expandour clubs portfolio. In February we opened a new G Casino in the centre ofLuton, relocating a licence from the former Grosvenor Casino on the outskirts ofthe town. In addition, we completed a project to extend and refurbish our casinoin Blackpool, relaunching the club as a G Casino. G Casinos are aimed at the mainstream leisure gaming market and typically occupylarge premises in high profile and easily accessible locations. As well asfeaturing spacious and modern gaming areas and large purpose-built poker rooms,a significant proportion of the G Casino's area is set aside for non-gamingactivities through the provision of live entertainment, sports and medialounges, bars and restaurants. During the second-half of the year, we willrelaunch the Hard Rock Casino at London's Leicester Square as a G Casino, takingto four the number of casinos operating under the brand. Where we are developingnew casinos or relocating existing licences, such as at Thanet (2008), Aberdeen(2008) and Dundee (2009) we will do so as G Casinos. Over the next four years we will execute a major programme of portfolioenhancement and expansion for our casinos. By 2010, we aim to open five newcasinos (under the Gaming Act 1968), to relocate as many as three existingcasinos to larger more modern premises and to carry out major refurbishment,including extensions, of a further 20 casinos. In this way we expect to growsignificantly the total footprint of our business by the end of the decade. We remain interested in the opportunity to develop a number of the 17 'newgeneration' casinos that are provided for within the 2005 Act, althoughfollowing recent comments from the Department for Culture, Media and Sport it isunclear how many licences will ultimately be granted. PRODUCT DEVELOPMENT Mecca Bingo Games development forms a key part of our strategy to broaden the appeal ofMecca Bingo by offering enhanced entertainment and excitement. In September 2007, as a consequence of the 2005 Act's provision for operators tocarry over a proportion of customer stakes into future bingo sessions, we willlaunch Mecca Millionaire, which is designed to pay out a £1 million jackpotprize. On average we expect to create one new Mecca Millionaire every 45 days,generating heightened excitement and providing a key focus for our marketingactivity. Following successful trials in 48 Mecca Bingo clubs in the first half of theyear, we are installing hand-held electronic bingo units in the majority of ourclubs. Electronic bingo provides customers with greater choice of how many bingotickets they play per game and it has led to an increase in average ticket salesper customer in the clubs where it has been introduced. At present only the three clubs with fixed desk-top units offer customerselectronic bingo on interval games as well as mainstage bingo. However, we arenow conducting tests to introduce interval games on portable technology. Grosvenor Casinos By working closely with the Gambling Commission we have agreed a list of newcasino bankers' games that we can introduce to our casinos under the terms ofthe 2005 Act. During the second half of the year, we will test threeinternationally established casino games (Texas Hold 'Em, Pai Gow Poker and Letit Ride) and six new side-bets, which previously have not been on the list ofapproved games within the UK. The 2005 Act will allow us to charge 'rake' on card room (player-to-player)poker, in place of the flat usage fees that have traditionally constituted cardroom revenue. As the UK's largest poker operator, we will consider carefullywhere and how we might implement this change. Blue Square In our interactive business, Blue Square, we are seeking to access new marketsthrough the development of new products and new means of distribution. We have signed an agreement with Virgin Media to provide its 3 millionbroadband, mobile phone and interactive television customers with our suite ofbetting and gaming products. The new service was launched in August. As we stated at the time of our preliminary results in March 2007, we have beenevaluating plans to develop an online bingo business for the Spanish market. Wehave completed this process of evaluation and plan to launch the business withinthe next six months. VISIBLE AND EFFECTIVE MARKETING Grosvenor Casinos Under the provisions of the 2005 Act, the tight advertising restrictions oncasino advertising are to be relaxed. From 1 September 2007, we will be able tocommunicate our product offer and our location to potential casino customers,subject to an agreed code of practice. We believe that this presents us with amajor opportunity both to stimulate interest in our casinos from potentialcustomers and to help demystify the wider public perception of the nature ofcasinos and casino gaming. In September we will launch our first major advertising campaign for casinos,focusing on local and regional press and radio, to heighten awareness and tostimulate growth in new members. From 4 September, our casinos will feature on Channel 4 Television as the venuesfor the Grosvenor UK Poker Tour, the largest and most high profile series ofpoker tournaments ever to be played in the UK. Over the course of 22 hour-longprogrammes, Channel 4 will televise the action from all 11 tour tournaments. Thegrand final is scheduled to take place in London at the Victoria Casino's newpoker room between 29 November and 2 December 2007. Blue Square During the first half of the year, Blue Square stepped up its UK marketingactivity, agreeing a number of high profile, televised sponsorships with theaims of increasing brand awareness and generating growth in active customers. This marketing programme featured sponsorship of the Blue Square UK Darts Openand the Blue Square Greyhound Derby, which captured in aggregate 32 hours ofprime time coverage on SKY Sports. In addition, we launched our first nationaltelevision advertising campaign for meccabingo.com. Since the start of the second half of the year, Blue Square has become the firstcompany to sponsor an entire day at horse racing's Glorious Goodwood festival(Channel 4) and has launched title and broadcast sponsorship of non-leaguefootball's Blue Square Premier (formerly known as the Football Conference),which is expected to receive up to 500 hours of coverage on Setanta Sportsduring the course of the 2007/8 season. Mecca Bingo The development of new high prize, high excitement games, like MeccaMillionaire, will be supported by a campaign of local press and radioadvertising and by outreach marketing activity. This will supplement our new and lapsed member recruitment programme. Atpresent, 32 of our Mecca Bingo clubs have a new member recruitment manager whoseresponsibility it is to reach out into the local community to attract newmembers to Mecca Bingo. GAMBLING TAXATION During the first half of the year we have continued to press the Government forclarity on its approach to gambling taxes. In particular we have highlighted thelack of consistency in the application of taxation to the different forms ofgambling covered under the 2005 Act. In March 2007 we joined with the Bingo Association in a vigorous and highlyvocal campaign to seek a taxation regime for the bingo industry that is in linewith the general level of betting taxation. On 25 July 2007, the Prime Ministerprovided a personal undertaking to meet with industry representatives in orderto review the current regime. Although this meeting has not yet taken place, wewelcome his personal involvement and hope that a fair resolution may now bereached. The announcement of the Budget on 14 March 2007 featured a surprise decision torestructure the sliding scale of casino gaming duty. This change, which wasintroduced without prior consultation or notice, is expected to cost usapproximately £8m in additional duty on an annual basis and around £6m in thecurrent year. In the period between its introduction on 1 April and 30 June2007, the new duty regime has cost the group £1.7m in additional duty. INTERIM DIVIDEND The board has committed to maintain, as a minimum, the absolute level of regulardividend per share in 2007 as was declared for 2006. As a consequence, we areannouncing an interim dividend of 2.0p per share. The dividend will be paid on12 October 2007 to shareholders on the register at 14 September 2007. OUTLOOK We have delivered a strong performance across the group in the first half of2007. However, the second half of the year will prove more challenging. This isdue mainly to the effects of the smoking bans which are now in place across theUK and the requirement for our bingo clubs and casinos to remove or convertSection 21 terminals in time for the full implementation of the 2005 Act (on 1September). In the eight week period since 1 July 2007, group like-for-like revenues weremarginally lower than in the same period in 2006. By continuing to develop our businesses in terms of products, service,environment and marketing we have put ourselves in a good position to seize thelong-term growth opportunities that are presented by the 2005 Act and by thewider modernisation of the UK gaming industry. SUMMARY OF RESULTS (from continuing operations) Revenue Operating profit Before After exceptionals exceptionals 2007 2006 2007 2006 2007 2006 £m £m £m £m £m £mMecca Bingo 132.5 133.9 31.5 31.8 40.6 31.8Top Rank Espana 15.8 15.2 4.6 4.2 4.6 4.2Grosvenor Casinos 110.1 109.6 21.0 20.5 21.0 20.5Blue Square 26.2 18.6 5.5 3.1 5.5 3.1Gaming Shared Services - - (10.2) (13.1) (10.2) (13.1) ------ ------ ------ ------ ------ ------ 284.6 277.3 52.4 46.5 61.5 46.5 Central costs and other - - (4.5) (8.5) (4.5) (20.6) ------- ------- ------ ------ ------ ------Continuing operations 284.6 277.3 47.9 38.0 57.0 25.9 ======= ======= Interest (net) (10.6) (16.1) (10.6) (30.8) ------ ------ ------ ------Adjusted profit before taxation 37.3 21.9 46.4 (4.9)Amortisation of equitycomponent of convertible bond (1.8) (1.5) (1.8) (1.5)Foreign exchange oninter-company balances (including hedging) - 7.5 - 7.5Net return on definedbenefit pension asset 5.1 - 5.1 - ------ ------ ------ ------Profit before taxation 40.6 27.9 49.7 1.1 ====== ====== ====== ====== Basic earnings (loss) per share - continuing operations 5.2p 3.3p 7.2p (0.3)pAdjusted earnings per share (note 7) 5.2p 2.4p Group revenue from continuing operations was up by £7.3m, driven by the increaseat our online business Blue Square. As noted earlier, revenue at our otheroperations was impacted by the closure of a number of sites in both 2007 and2006 as well as the effect of the smoking bans in the UK and Spain. Group operating profit before exceptional items was £9.9m higher than 2006.Profits from our operating businesses grew by £3.0m despite £1.7m in additionalcasino duty and £5.6m in additional lease costs arising from the 2006 sale andleaseback transaction. We reduced shared service costs and central costs by anaggregate £6.9m (although the 2006 figures included £4.0m of non-recurringcosts). The net interest charge was £5.5m lower than in 2006, which reflects the saleand leaseback in 2006, the disposal of Hard Rock in March 2007 and theaccompanying payment of a special dividend in April 2007. The effective tax rate on adjusted profits is 34.3% (2006: 33.3%). The taxcharge is in line with the continuing Group's anticipated effective tax rate of30% to 35%. Adjusted Group profit before tax was £15.4m above last year. Adjusted earningsper share of 5.2p (2006: 2.4p) reflect the higher level of Group operatingprofit and the decrease in the average number of shares in issue. The number ofshares has reduced as a result of the returns we have made to shareholdersthrough a share buyback programme in 2006 and the share consolidation thataccompanied the special dividend in 2007. Under International Financial Reporting Standards (IFRS), foreign exchangemovements on certain inter-company loans are recognised in the income statementas financial gains or losses. In this period no gain has been recognised againstthe results of the continuing Group (2006: gain £7.5m). The amortisation of theGroup's convertible bond's equity component has resulted in a £1.8m (2006:£1.5m) charge being recognised in the income statement in accordance with IAS 32and IAS 39. The Group closed ten bingo clubs in the first six months of 2007 and sold threeof the freehold clubs for an aggregate consideration of £13.1m. The profit ondisposal of the clubs, net of closure costs for the remaining clubs, totalled£9.1m and has been shown as an exceptional item in accordance with our revisedaccounting policy stated in note 2 to the Interim Financial Statements. In addition the Group has changed its accounting policy for pensions as set outin Note 11 to the Interim Financial Statements. The impact of the change is thatthe service cost element of pension costs is shown within operating profitwhereas interest and return on assets is now shown within finance costs. Thischange is in accordance with accounting best practice. The performances of Mecca Bingo, Top Rank Espana, Grosvenor Casinos and BlueSquare are covered in more detail below. BINGO Revenue Operating Profit 2007 2006 2007 2006 £m £m £m £mMecca Bingo 132.5 133.9 31.5 31.8Top Rank Espana 15.8 15.2 4.6 4.2 -------- -------- -------- -------- 148.3 149.1 36.1 36.0 ======== ======== ======== ======== Revenue of £148.3m from our bingo operations was only marginally lower than inthe same period in 2006 and was delivered from a smaller base of clubs.Operating profit rose slightly to £36.1m. Mecca Bingo Like-for-like Admissions Spend per head Revenue growth(comparable clubs) 2007 2006 2007 2006 % (000s) (000s) £ £ ------- ------- ------- ------- -------------Mecca Bingo 8,804 9,237 14.44 13.55 1.6 ======= ======= ======= ======= ============= In our UK bingo clubs business, Mecca Bingo, first-half revenue declined by 1.0%to £132.5m and operating profit was down 0.9% to £31.5m, with the programme ofefficiencies introduced in 2006 off-setting in large part the £4.0m increase inlease costs, arising from last year's sale and leaseback. Mecca Bingo's share ofthe bingo market (calculated by its share of National Game ticket sales) edgedhigher to 29%, despite the effect of club closures in the period. On a like-for-like basis, revenue increased by 1.6% with a 6.6% rise in spendper head and a 4.7% decline in admissions. This performance constituted a 4.7%rise in like-for-like revenue in England and Wales and a 5.5% fall in Scotland.However, in Scotland we began to generate a level of recovery during the secondquarter of the year, with a 0.9% increase in like-for-like revenue in the13-week period between the anniversary of the introduction of the ban and 30June 2007. In preparation for the introduction of the smoking ban in England, which cameinto effect on 1 July 2007, we undertook a number of actions to minimisedisruption to our customers. At 30 August 2007, 80 of our clubs across the UKwere able to offer outside sheltered areas, principally for the benefit of thosecustomers who wish to smoke. Where possible we intend to amend our gaming licences to allow customers theopportunity to play bingo within these sheltered enclosures. In April, at MeccaBingo Dundee, we opened the first licensed outdoor bingo area in the UK. Sincethe start of the second half, the number of our clubs offering outside bingogaming areas has grown to nine and the number of clubs where we have gainedlicensing approval to do likewise has risen to 15. During the first half of the year we closed ten Mecca Bingo clubs as part of ourprogramme to improve the quality of our business. We estimated that, in theabsence of the called-for changes to taxation, these clubs would becomeloss-making under the smoking ban. In the majority of cases we have been able toretain a significant proportion of the membership base within nearby Mecca Bingoclubs. At 30 June 2007, we operated 103 Mecca Bingo clubs across the UK. Since thatdate we have closed one further club, at Kilburn in north London. Analysis of UK bingo revenue 2007 2006 £m £mMain stage bingo 23.1 23.3Interval games 59.0 61.8Gaming machines 37.8 36.1Food, beverage and other 12.6 12.7 -------- -------Total 132.5 133.9 ======== ======= Revenue from main stage bingo declined slightly in the period, broadly in linewith the fall in total admissions. Revenue from interval games was affected bythe smoking bans in Scotland and Wales and fell by 4.5% to £59.0m. Revenue from gaming machines continued to grow as a result of our programme toexpand and improve our gaming machine areas and now accounts for 28.5% of totalclub revenues. From 1 September 2007 our bingo clubs will be restricted to four 'Category B3'machines (which offer a maximum jackpot of £500). While there are no statutorylimits on the number of lower prize 'Category C' machines (for jackpots between£8 and £35) we will no longer be able to offer the popular Section 21 terminalsto our customers. We have undertaken a number of actions in order to manage customer responses tothis change and to retain the revenue generated by Section 21 terminals (whichrepresented 18% of Mecca's machines estate but a greater proportion of machinesrevenue). These actions include the conversion of almost all of our Section 21terminals to Category B3 or Category C machines, the removal of more than 300outdated machines and the creation of larger and more attractive gaming machineareas. As a result of all of these changes we anticipate a net increase in thenumber of gaming machines of approximately 7% by 2008. Top Rank Espana Like-for-like Admissions Spend per head Revenue growth(comparable clubs) 2007 2006 2007 2006 % (000s) (000s) £ £ ------- ------- ------- ------- -------------Top Rank Espana 1,223 1,239 12.92 12.27 3.9 ======= ======= ======= ======= ============= Top Rank Espana, which operates 11 bingo clubs in Spain, has enjoyed a positivestart to the year with revenue starting to recover from the partial smoking banintroduced in 2006. Revenue of £15.8m was 3.9% ahead of the first half in 2006and operating profit increased by 9.5% to £4.6m. We grew spend per head by 5.3%, largely as a result of our investment in newgaming machines technology and improved electronic gaming areas. The requirementin September last year to introduce physical partitions between smoking andnon-smoking areas continued to affect admissions, which fell 1.3%, although therate of decline slowed by comparison with the second half of 2006. The modernisation of gambling laws in Spain presents opportunities for furtherproduct development and growth. Recently we have introduced electronic rouletteterminals into a small number of our bingo clubs. We will continue to evaluateopportunities to add scale to our business in Spain. CASINOS In Grosvenor Casinos, revenue of £110.1m was 0.5% ahead of the first half lastyear, despite a number of portfolio changes in 2006 (which resulted in a netreduction in the number of casinos operated). Operating profit grew 2.4% to£21.0m despite the negative effects of the rise in casino gaming duty (£1.7mincremental duty paid in the period) and the £1.6m additional lease costsarising from last year's sale and leaseback transaction. Revenue Operating profit 2007 2006 2007 2006 £m £m £m £mLondon 46.3 48.6 8.9 9.0Provincial 57.7 54.8 11.7 11.0Belgium 6.1 6.2 0.4 0.5 -------- ----------- ------------ ---------Total 110.1 109.6 21.0 20.5 ======== =========== ============ ========= In the UK, we achieved a 0.6% increase in revenue and 3.0% growth in operatingprofit. On a like-for-like basis, revenue was 3.6% ahead of the first half in2006, with a 5.6% rise in spend per head and a 1.8% decline in admissions.Active membership rose to more than 788,000, representing 7.3% growth over thelast 12 months. Like-for-like Admissions Spend per head Revenue growth(comparable clubs) 2007 2006 2007 2006 % (000s) (000s) £ £London 491 477 94.38 92.92 4.5Provincial 1,570 1,622 32.44 30.52 2.8 --------- --------- -------- -------- --------Total UK 2,061 2,099 47.19 44.70 3.6 ========= ========= ======== ======== ======== London - Our London casinos (comprising the Park Tower, the Victoria, theConnoisseur, the Gloucester and the Hard Rock) delivered good underlying growth,although the effects of last year's sale of the Clermont Club and of higherlease costs caused operating profit for the segment to dip slightly. On alike-for-like basis revenue increased by 4.5% with admissions ahead by 2.9% andspend per head up 1.6%. During the period, the Victoria Casino underwent a major 14-week refurbishmentto improve the layout of the club and to create London's largest dedicated pokerroom. During the second half of the year, the Hard Rock Casino on LeicesterSquare will also undergo significant refurbishment before being rebranded as a GCasino in September 2007. Provincial - our 28 provincial casinos delivered 5.3% growth in revenue and a6.4% improvement in operating profit. On a like-for-like basis revenue grew by2.8% with a 3.2% decline in admissions and a 6.3% increase in spend per head.Our year-on-year admissions performance is affected by a strong comparativeperiod in the first quarter of 2006, when exceptionally high promotionalactivity boosted customer attendance. As we predicted we experienced a return toadmissions growth during the second quarter of the year. In February we opened a new G Casino in the centre of Luton, (relocating alicence from the former Grosvenor Casino on the outskirts of the town) and were-branded our club in Blackpool as a G Casino, extending the casino area from15,000 sq ft to 26,000 sq ft and carrying out a major refurbishment in theprocess. In March we secured a new casino licence at Southend-on-Sea in Essex. Over thecourse of the last three years we have been granted nine new casino licences(all outside London). We have one further application in progress, in Edinburgh,which we hope to gain during the second half. These non-operating licencesprovide significant potential for the growth of our portfolio. Belgium - Our two casinos in Belgium, at Middlekerke and Blankenberge,experienced modest decreases in revenue and operating profit. INTERACTIVE Blue Square 2007 2006 £m £mGaming 17.2 10.2Sportsbook 9.0 8.4 ---------------- ----------------Gross win/ revenue 26.2 18.6 ================ ================ Operating Profit 5.5 3.1 ================ ================ In Blue Square, our interactive gambling business, we grew revenue by 40.9% to£26.2m, with operating profit increasing by 77.4% to £5.5m. Active customernumbers grew by 22.7% to more than 320,000. The performance of our gaming products was the principal driver of Blue Square'sgrowth with gross win increasing by 68.6% to £17.2m. Gross win in sportsbook of£9.0m was 7.1% ahead of the first half in 2006 and represents a good performancein this more mature segment of the interactive market. During the period we launched or agreed a number of high profile televisedsponsorships for Blue Square, covering some of the biggest events this year inpoker tournaments, non-league football, greyhound racing, horse racing anddarts. We believe that this level of targeted activity will sustain the growthof our business within the UK, although the consequent increase in marketingexpenditure is likely to compress our operating margin in the second half of2007. CASH FLOW AND NET DEBT 2007 2006 £m £mContinuing operationsCash inflow from operations 60.6 39.8Capital expenditure (15.0) (22.8)Fixed asset disposals 19.2 1.7 ---------- ---------Operating cash inflow 64.8 18.7Acquisitions and disposals 498.7 409.5Payment in respect of provisions and exceptional costs (2.6) (11.3) ---------- --------- 560.9 416.9Interest, tax and dividend payments (34.0) (98.5)Special dividend / share buy-back (352.5) (102.7)Additional contribution to pension fund (15.4) (50.0)Other (including foreign exchange translation) (0.3) 20.0Discontinued operations (4.0) (1.5) ---------- ---------Decrease in net debt 154.7 184.2Opening net debt (447.2) (739.4) ---------- ---------Closing net debt (note 9) (292.5) (555.2) ========== ========= Net debt has reduced by £154.7m in the period, primarily as a result of theproceeds from the sale of Hard Rock offset by the related special dividend. Operating cash flow shown above was £64.8m, £46.1m higher than 2006 primarilydue to the £9.9m increase in pre-exceptional operating profit over 2006 togetherwith the property sales arising from the club closures and capital expenditurebelow 2006 levels. An analysis of capital expenditure by segment is presentedbelow. Capital Expenditure 2007 2006 £m £mContinuing operationsMecca Bingo 5.1 5.0Top Rank Espana 1.8 2.6Grosvenor Casinos 5.7 13.2Blue Square 1.8 1.3Other 0.6 0.7 ---------- ---------Total 15.0 22.8 ========== ========= Capital expenditure for Mecca included £1.6m associated with the introduction ofthe smoking ban, including the erection of sheltered outside areas. Capital expenditure for Grosvenor included the development of the G Casino inLuton opened in February 2007, the conversion of Blackpool to a G Casino and therefurbishment of the Grosvenor Victoria Casino in London. Acquisitions and Disposals The £498.7m cash inflow in the period arises on the sale of Hard Rock. Theamount comprises proceeds of £502m, plus an additional amount received from thepurchaser in respect of certain expenditures arising in the period between 7December 2006 and 5 March 2007, less disposal costs and tax incurred to date. Special Dividend On 9 April 2007 the Group paid a special dividend of 65.0p per share followingthe disposal of Hard Rock. The payment of the special dividend was accompaniedby an 18 for 25 share consolidation. The total value of the special dividendpaid was £352.5m. Pension Fund During the course of the period the Group made payments totalling £15.4m inaccordance with an agreement with the Group pension plan trustees. This includeda £0.4m payment that, under Section 75 of the Pensions Act, was requiredfollowing the sale of Hard Rock. In addition, we have committed to a series offuture contributions totalling £35m to be paid over the next three years, withthe last payment due no later than January 2010. These payments are in additionto the Group's normal annual contributions. In August 2007 we will make a £5mSection 75 payment in respect of Deluxe Media Services and this will be treatedas part of the committed future contributions. The three remaining payments of£10m each are due in January of 2008, 2009 and 2010. The scheme has been closedto new entrants since 2000. Bank Facilities In April 2007 the Group negotiated new banking facilities comprising a £250mrevolving credit facility and a £150m term loan, both of which expire in 2012.The Group's US $100m Yankee bond, which is shown in current liabilities, expiresin January 2008 and will be repaid using these facilities. SHAREHOLDER INFORMATION Dividends The board has resolved to pay an interim dividend of 2.0p per Ordinary share(2006: 2.0p per share). The record date for the interim dividend is 14 September2007 and the payment date is 12 October 2007. A final dividend of 4.0p per share was paid on 11 May 2007 at a cost of £15.7m. GROUP INCOME STATEMENT (unaudited) For the period ended 30 June 2007 2007 2006 (restated) Before Exceptional Total Before Exceptional Total exceptional Items exceptional Items Items Items £m £m £m £m £m £m -------- -------- ------- -------- -------- -------Continuing operationsRevenue 284.6 - 284.6 277.3 - 277.3Cost of sales (144.9) - (144.9) (146.8) - (146.8) -------- -------- ------- -------- -------- -------Gross profit 139.7 - 139.7 130.5 - 130.5 Other operating (costs) income (91.8) 9.1 (82.7) (92.5) (12.1) (104.6) -------- -------- ------- -------- -------- -------Group operating profit (loss) 47.9 9.1 57.0 38.0 (12.1) 25.9 Financing: -------- -------- ------- -------- -------- -------- finance costs (13.5) - (13.5) (18.3) (14.7) (33.0)- finance income 2.9 - 2.9 2.2 - 2.2- amortisation of equity component of convertible bond (1.8) - (1.8) (1.5) - (1.5)- foreign exchange gain on inter-company loans including hedging - - - 7.5 - 7.5 -------- -------- ------- -------- -------- -------- net return on defined benefit pension asset 5.1 - 5.1 - - - -------- -------- ------- -------- -------- -------Total net financing charge (7.3) - (7.3) (10.1) (14.7) (24.8) -------- -------- ------- -------- -------- -------Profit (loss) before taxation 40.6 9.1 49.7 27.9 (26.8) 1.1 Taxation (note 4) (16.1) 0.5 (15.6) (7.3) 4.4 (2.9) -------- -------- ------- -------- -------- -------Profit (loss) for the period from continuing operations 24.5 9.6 34.1 20.6 (22.4) (1.8) Discontinued operations (note 3) (0.3) 308.0 307.7 11.4 - 11.4 -------- -------- ------- -------- -------- -------Profit (loss) for the period 24.2 317.6 341.8 32.0 (22.4) 9.6 ======== ======== ======= ======== ======== ======= Profit attributable to minority interest - - - 1.2 - 1.2 Profit (loss) attributable to equity shareholders 24.2 317.6 341.8 30.8 (22.4) 8.4 -------- -------- ------- -------- -------- ------- 24.2 317.6 341.8 32.0 (22.4) 9.6 ======== ======== ======= ======== ======== ======= Earnings (loss) per shareattributable to equity shareholders Basic 5.1p 67.3p 72.4p 5.0p (3.6)p 1.4pDiluted 5.1p 67.3p 72.4p 5.0p (3.6)p 1.4pEarnings (loss) per share - continuing operationsBasic 5.2p 2.0p 7.2p 3.3p (3.6)p (0.3)pDiluted 5.2p 2.0p 7.2p 3.3p (3.6)p (0.3)pEarnings (loss) per share - discontinuedoperationsBasic (0.1)p 65.3p 65.2p 1.7p - 1.7pDiluted (0.1)p 65.3p 65.2p 1.7p - 1.7p Further earnings per share information is provided in note 7. The 2006 comparative has been restated for the classification of Hard Rock andUS Holidays as discontinued operations. GROUP INCOME STATEMENT (unaudited) For the period ended 30 June 2007 6 months to 6 months to Year to 30.6.07 30.6.06 31.12.06 (restated) (restated) £m £m £m --------- --------- ---------Continuing operationsRevenue 284.6 277.3 549.6Cost of sales (144.9) (146.8) (282.5) --------- --------- ---------Gross profit 139.7 130.5 267.1 --------- --------- ---------Other operating costs (including exceptional items) (82.7) (104.6) (140.2) --------- --------- ---------Group operating profit 57.0 25.9 126.9 Net finance costs (including exceptionalitems) (7.3) (32.3) (44.0) --------- --------- ---------Foreign exchange gain on inter-companyloans including hedging - 7.5 10.0 --------- --------- ---------Total net financing charge (7.3) (24.8) (34.0) --------- --------- ---------Profit before tax 49.7 1.1 92.9 Taxation (note 4) (15.6) (2.9) 21.6 Profit (loss) for the period from continuing operations 34.1 (1.8) 114.5 Discontinued operations (note 3) 307.7 11.4 4.5 --------- --------- ---------Profit for the period 341.8 9.6 119.0 ========= ========= ========= Earnings per share attributable to equityshareholdersBasic 72.4p 1.4p 19.9pDiluted 72.4p 1.4p 19.9p Dividend perordinary share 2.0p 2.0p 6.0p The 2006 interim comparative has been restated for the classification of HardRock and US Holidays as discontinued operations. The 2006 full year comparativehas also been restated to reclassify certain pension costs to net financingcosts and certain costs as exceptional items. Further details are provided innote 11. GROUP BALANCE SHEET (unaudited) As at 30 June 2007 As at As at As at 30.06.07 30.06.06 31.12.06 (restated) (restated) £m £m £mNon-current assetsIntangible assets 172.7 191.8 173.2Property, plant and equipment 194.7 325.9 203.8Investments 0.5 59.1 0.5Defined benefit pension asset 106.1 - 75.8Deferred tax assets 2.5 61.9 9.7Trade and other receivables 1.4 20.0 8.4 --------- --------- --------- 477.9 658.7 471.4 --------- --------- ---------Current assetsFinancial assets - derivative financial instruments 1.8 5.8 9.5 - cash and cash equivalents 95.8 81.6 83.6Inventories 3.7 33.8 4.3Trade and other receivables 39.8 56.5 56.7Assets held for sale 1.4 181.1 242.0 --------- --------- --------- 142.5 358.8 396.1 --------- --------- ---------Total assets 620.4 1,017.5 867.5 --------- --------- --------- Current liabilitiesFinancial liabilities - derivative financial instruments (3.8) (2.2) (2.6) - loan capital and borrowings (60.3) (45.8) (10.8)Trade and other payables (108.7) (153.1) (125.2)Current tax liabilities (5.9) (2.0) (2.3)Provisions for other liabilities and charges (15.6) (15.6) (12.7)Liabilities held for sale - (69.1) (44.5) --------- --------- --------- (194.3) (287.8) (198.1) --------- --------- --------- Net current (liabilities) assets (51.8) 71.0 198.0 --------- --------- --------- Non-current liabilitiesFinancial liabilities - derivative financial instruments - (2.4) (1.6) - loan capital and borrowings (328.1) (587.0) (510.5)Deferred tax liabilities (7.7) - (7.7)Other non-current liabilities (32.3) (30.4) (32.9)Provisions for other liabilities and charges (43.8) (55.3) (41.4) --------- --------- --------- (411.9) (675.1) (594.1) --------- --------- --------- Total liabilities (606.2) (962.9) (792.2) --------- --------- --------- Net assets 14.2 54.6 75.3 ========= ========= ========= Shareholders' equityOrdinary shares 54.2 58.2 54.2Share premium 98.2 95.7 98.1Other reserves (138.2) (108.6) (77.0) --------- --------- ---------Total shareholders' equity 14.2 45.3 75.3Minority interests - 9.3 - --------- --------- ---------Total equity 14.2 54.6 75.3 ========= ========= ========= The 2006 comparatives have been restated to reclassify £13.9m of assets fromproperty, plant and equipment to intangible assets. The 2006 half yearcomparatives have also been restated to reclassify £15.6m of provisions fromnon-current to current liabilities. GROUP CASH FLOW STATEMENT (unaudited) For the period ended 30 June 2007 6 months to 6 months to Year to 30.06.07 30.06.06 31.12.06 (restated) (restated) £m £m £mCash flows from operating activitiesCash generated from operations (note 5) 58.0 28.5 70.3Net interest paid (16.4) (31.5) (58.2)Tax paid (1.9) (4.3) (3.9)Additional pension payment (15.4) (50.0) (50.0)Discontinued operations (note 3) (4.9) 6.2 7.5 --------- --------- ---------Net cash from (used in) operatingactivities 19.4 (51.1) (34.3) Cash flows from investing activitiesNet proceeds from sale of businesses(net of 498.7 400.6 449.8cash disposed, disposal costs and tax)Acquisition of businesses - - (0.6)Purchase of property, plant andequipment (15.0) (22.8) (50.2)Proceeds from sale of property, plantand equipment 19.2 1.7 10.1Net proceeds from sale and leaseback - - 171.9Proceeds from sale of investments - 8.9 8.8Discontinued operations (note 3) 0.9 (7.7) (21.8) --------- --------- ---------Net cash from investing activities 503.8 380.7 568.0 Cash flows from financing activitiesDividends paid to shareholders -ordinary (15.7) (62.7) (74.1)Dividends paid to shareholders - special (352.5) - -Net proceeds from issue of ordinaryshare capital 0.1 2.7 5.2Share buy-back - (102.7) (201.4)Purchase of own shares (2.1) - -Debt due within one year - drawdown of syndicated facilities 150.0 24.3 -Debt due after more than one year - drawdown of syndicated facilities - 351.3 300.1 - repayment of US Dollar borrowings - (219.0) (219.1) - repayment of Sterling borrowings - (35.0) (35.0) - repayment of syndicated facilities (285.2) (317.7) (326.3) - other - (1.0) -Finance lease principal repayments (0.3) (0.4) (1.6)Discontinued operations (note 3) (2.5) (11.0) (13.8) --------- --------- ---------Net cash used in financing activities (508.2) (371.2) (566.0) Effects of exchange rate changes 0.1 (1.2) (1.7) Net increase (decrease) in cash and cash equivalents 15.1 (42.8) (34.0)Cash and cash equivalents at beginningof year 75.4 109.4 109.4 --------- --------- ---------Cash and cash equivalents at end ofperiod 90.5 66.6 75.4 ========= ========= ========= The 2006 comparatives have been restated as a result of discontinued operations. GROUP STATEMENT OF RECOGNISED INCOME AND EXPENSE (unaudited) For the period ended 30 June 2007 6 months to 6 months to Year to 30.06.07 30.06.06 31.12.06 £m £m £mProfit for the financial period 341.8 9.6 119.0Currency translation net of tax andhedging (6.0) (3.7) (28.3)Actuarial gain on defined benefitpension scheme net of tax 6.9 6.9 64.7Revaluation of available for salesecurities - 25.4 22.8Cumulative foreign exchange lossesrecycled within net profit 8.6 - -Revaluation of available for salesecurities recycled within net profit (44.4) 12.1 12.1Adjustment in respect of deferred taxfrom 30% to 28% 1.7 - -Tax on non-qualifying leasehold property - 0.6 - --------- --------- ---------Total recognised income for the year 308.6 50.9 190.3 ========= ========= ========= - attributable to minority interest - 1.2 1.8- attributable to equity shareholders 308.6 49.7 188.5 --------- --------- --------- 308.6 50.9 190.3 ========= ========= ========= NOTES TO THE INTERIM FINANCIAL STATEMENTS (unaudited) For the period ended 30 June 2007 1. Basis of preparation and accounting policies The interim financial statements have been prepared on the basis of theaccounting policies set out in the Group's financial statements for the yearended 31 December 2006 except as outlined in note 11. The accounting policieshave been consistently applied to all periods presented. The financialinformation has been prepared in accordance with the Listing Rules of the LondonStock Exchange. The Group has not adopted IAS 34 "Interim Financial Reporting" in these interimfinancial statements. IAS 34 is mandatory for reporting periods commencing on orafter 20 January 2007. The financial information contained in this report has not been audited and doesnot constitute statutory accounts within the meaning of Section 240 of theCompanies Act 1985. The statutory accounts for the year ended 31 December 2006,which were prepared under IFRS as adopted by the EU, have been delivered to theRegistrar of Companies. The auditors' opinion on these accounts was unqualifiedand did not contain a statement made under Section 237(2) and Section 237(3) ofthe Companies Act 1985. 2. Continuing operations - exceptional items The Group defines exceptional items as those items which, by their size ornature, are separately disclosed in order to give a full understanding of theGroup's financial performance and aid comparability of the Group's resultbetween periods. This would include, to the extent they are material, gains orlosses on the disposal of property, impairments of the carrying values of clubs,costs of club closures, onerous lease provisions on vacant properties anddisposals of businesses. Pre-tax exceptional items are set out below: 6 months to 6 months to Year to 30.06.07 30.06.06 31.12.06 (restated) £m £m £m Net profit on club disposals - Grosvenor - - 13.0Net profit on club disposals - Mecca 9.1 - 6.1Profit on sale and leaseback transaction - - 55.3Impairment of Bingo clubs - - (8.6)Financing charge - (14.7) (14.7)Loss on sale of investment - (12.1) (12.1) --------- --------- ---------Total 9.1 (26.8) 39.0 ========= ========= ========= The net profit on club disposals in 2006 comprises the sale of the Clermont Clubin Grosvenor and the sale of the Dingle club in Mecca Bingo,. The impairment charge of £8.6m recognised in 2006 included the estimated impactof the smoking ban on the carrying value of the Group's clubs. The smoking banwas introduced in England on 1 July 2007 and at this early stage we believe theoriginal calculations made remain our best estimate of the financial impact. TheGroup will continue to monitor the carrying value of its clubs in the secondhalf of 2007 as the financial impact of the ban becomes clearer. 3. Discontinued operations The Group completed the sale of Hard Rock on 5 March 2007 resulting in anexceptional profit of £325.7m before related financing and taxation costs of£17.7m. The results, revenue and costs are recorded in a single line on apost-tax basis in the income statement. A breakdown of the results ofdiscontinued operations is shown below. In the period Hard Rock made a small operating profit of £0.1m, made £0.3m lossfrom associates and incurred interest of £0.1m, giving a pre exceptional loss ondiscontinued operations of £0.3m. Hard US Rock Holidays DMS Film Total 30.6.07 30.6.07 30.6.07 30.6.07 30.6.07 £m £m £m £m £mRevenue 35.6 - - - 35.6 ------- ------- ------- ------- -------Operating profit beforeexceptional items 0.1 - - - 0.1Profit on disposal ofHard Rock 325.7 - - - 325.7Loss from associates (0.3) - - - (0.3)Net finance costs(including exceptional items) (10.0) - - - (10.0) ------- ------- ------- ------- -------Profit before tax 315.5 - - - 315.5Taxation (includingexceptional items) (7.8) - - - (7.8) ------- ------- ------- ------- -------Net profit 307.7 - - - 307.7 ======= ======= ======= ======= ======= (Restated) 30.6.06 30.6.06 30.6.06 30.6.06 30.6.06 £m £m £m £m £mRevenue 133.7 15.1 96.2 26.2 271.2 ------- ------- ------- ------- -------Operating profit (loss) 18.9 1.1 (10.0) 1.3 11.3(Loss) income fromassociates (0.9) - - 0.1 (0.8)Net finance costs (0.3) - (0.5) - (0.8) ------- ------- ------- ------- -------Profit (loss) before tax 17.7 1.1 (10.5) 1.4 9.7Taxation (0.8) - 2.9 (0.4) 1.7 ------- ------- ------- ------- -------Net profit (loss) 16.9 1.1 (7.6) 1.0 11.4 ======= ======= ======= ======= ======= Revenue 271.2 28.0 163.1 26.2 488.5 ------- ------- ------- ------- -------Operating profit (loss)before exceptional items 40.4 2.1 (13.9) 1.5 30.1Loss on disposal of USHolidays - (20.0) - - (20.0)(Loss) income fromassociates (1.3) - - 0.1 (1.2)Net finance costs (2.6) - (0.9) - (3.5) ------- ------- ------- ------- -------Profit (loss) before tax 36.5 (17.9) (14.8) 1.6 5.4Taxation (includingexceptional items) 0.4 (3.7) 5.3 (2.9) (0.9) ------- ------- ------- ------- -------Net profit (loss) 36.9 (21.6) (9.5) (1.3) 4.5 ======= ======= ======= ======= ======= Cash flows relating to discontinued operations are as follows: Hard US Rock Holidays DMS Film Total 30.6.07 30.6.07 30.6.07 30.6.07 30.6.07 £m £m £m £m £mCash flow fromoperating activities (0.7) - (4.2) - (4.9)Cash flow frominvesting activities (1.4) - 2.3 - 0.9Cash flow fromfinancing activities (0.1) - (2.4) - (2.5) ------- ------- ------- ------- ------- (2.2) - (4.3) - (6.5) ======= ======= ======= ======= ======= (Restated) 30.6.06 30.6.06 30.6.06 30.6.06 30.6.06 £m £m £m £m £mCash flow fromoperating activities 20.4 1.4 (35.2) 19.6 6.2Cash flow frominvesting activities (4.5) (1.0) (0.9) (1.3) (7.7)Cash flow fromfinancing activities (2.5) (0.1) (8.4) - (11.0) ------- ------- ------- ------- ------- 13.4 0.3 (44.5) 18.3 (12.5) ======= ======= ======= ======= ======= 31.12.06 31.12.06 31.12.06 31.12.06 31.12.06 £m £m £m £m £mCash flow fromoperating activities 45.0 (3.0) (53.0) 18.5 7.5Cash flow frominvesting activities (17.5) (1.8) 0.1 (2.6) (21.8)Cash flow fromfinancing activities (4.4) (0.1) (9.2) (0.1) (13.8) ------- ------- ------- ------- ------- 23.1 (4.9) (62.1) 15.8 (28.1) ======= ======= ======= ======= =======4. Taxation The taxation charge, including amounts disclosed within discontinued operations,may be analysed as follows: 6 months to 6 months to Year to 30.06.07 30.06.06 31.12.06 (restated) (restated) £m £m £mContinuing operations - adjusted profit 12.8 7.3 13.4 - deferred tax impact of reduction in Corporation Tax rate to 28% 1.8 - - - tax on foreign exchange on inter-company loans and net return on pension asset 1.5 - (8.8) --------- -------- --------Charge for continuing operations 16.1 7.3 4.6 Discontinued operations - (1.7) 3.9 --------- -------- --------Total pre-exceptional tax charge 16.1 5.6 8.5 ========= ======== ======== Exceptional tax charge (credit) - continuing operations (0.5) (4.4) (26.2) - discontinued operations 7.8 - (3.0) --------- -------- --------Total exceptional tax charge (credit) 7.3 (4.4) (29.2) ========= ======== ======== --------- -------- --------Total tax charge (credit) 23.4 1.2 (20.7) ========= ======== ======== The announced reduction in the headline Corporation Tax rate from 30% to 28% hasled to a one off increase in the tax charge of £1.8m as the Group's UK deferredtax assets are restated based on the reduced rate. An offsetting £1.7m credithas been recognised through the Statement of Recognised Income and Expenditurein accordance with IAS 12. The effective tax rate on adjusted profit for the group of 34.3% (2006: 33.3%)is in line with the Group's expectation of an underlying effective tax rate forthe continuing Group of between 30% and 35%. The effective tax rate for theGroup for the full year is expected to be approximately 35%. The exceptional tax credit on continuing operations of £0.5m comprisesdeductions available to the Group following the closure of a number of clubsduring the year. The exceptional tax charge on discontinued operations of £7.8m comprises acurrent charge on the sale of Hard Rock less current tax credits on exceptionalfinancing costs associated with the sale. 5. Reconciliation of operating profit to cash generated from operations 6 months to 6 months to Year to 30.06.07 30.06.06 31.12.06 (restated) (restated)Continuing operations £m £m £m Operating profit 57.0 25.9 126.9Exceptional (credit) charge (9.1) 12.1 (53.7)Depreciation and amortisation 13.9 14.4 28.9Increase in working capital (1.4) (11.6) (3.7)Other 0.2 (1.0) 8.9 --------- -------- --------Cash inflow from operations 60.6 39.8 107.3Cash payments in respect ofprovisions and exceptional costs (2.6) (11.3) (37.0) --------- -------- --------Net cash generated from continuingoperations 58.0 28.5 70.3 ========= ======== ======== 6. Reconciliation of adjusted profit attributable to equity shareholders Adjusted profit attributable to equity shareholders is derived as follows: 6 months to 6 months to Year to 30.06.07 30.06.06 31.12.06 (restated) (restated) £m £m £mProfit attributable to equityshareholders 341.8 8.4 117.2Discontinued operations (net ofminority interest) (307.7) (10.2) (2.7)Exceptional items before tax oncontinuing operations (9.1) 26.8 (39.0)Foreign currency gains oninter-company balances includinghedging - (7.5) (10.0)Amortisation of equity component ofconvertible bond 1.8 1.5 3.0Net return on defined benefit pensionasset (5.1) - (6.7)Deferred tax impact of reduction inCorporation Tax rate to 28% 1.8 - -Tax on adjusted items 1.0 (4.4) (35.0) --------- -------- --------Adjusted profit attributable toequity shareholders 24.5 14.6 26.8 ========= ======== ======== 7. Earnings per share 6 months to 6 months to Year to 30.06.07 30.06.06 31.12.06 (restated) (restated)Continuing operationsAdjusted profit (see note 6) £24.5m £14.6m £26.8mWeighted average number of shares 472.2m 611.2m 587.5mBasic adjusted earnings per share 5.2p 2.4p 4.6p The weighted average number of shares used in the calculation of basic earningsper share is 472.2m (2006 interim: 611.2m, 2006 full year: 587.5m). For dilutedearnings per share the weighted average number of shares used in the calculationis 472.2m (2006 interim: 611.4m, 2006 full year: 588.0m). Options are dilutive at the profit from continuing operations level and so, inaccordance with IAS 33, have been treated as dilutive for the purpose of dilutedearnings per share. 8. Exchange rates The US$/£ exchange rates for the relevant accounting periods are: 6 months to 6 months to Year to 30.06.07 30.06.06 31.12.06 Average 1.98 1.80 1.85Period end 2.01 1.85 1.96 Following the sale of the Group's operations in the US, movements in exchangerates have a minimal impact on the operating profit of the continuing Group.Movements in exchange rates increased net debt by £1.2m during the period. 9. Borrowings to net debt reconciliation Under IFRS, accrued interest and facility fees are classified as borrowings. Inaddition, net debt, which is part of the assets and liabilities held for sale isdisclosed separately. A reconciliation of net borrowings, disclosed in thebalance sheet, to the Group's net debt position is provided below. As at As at As at 30.06.07 30.06.06 31.12.06 £m £m £mBorrowings, net of cash (292.6) (551.2) (437.7)Amounts disclosed within disposal group - (3.7) (5.2)(Prepaid) accrued interest and facility fees 0.1 (0.3) (4.3) --------- -------- --------Net debt (292.5) (555.2) (447.2) ========= ======== ======== 10. Statement of changes in shareholders' equity 6 months to 6 months to Year to 30.06.07 30.06.06 31.12.06 £m £m £m Profit attributable to equityshareholders 341.8 8.4 117.2Dividends (368.2) (62.7) (74.1)Credit in respect of employee shareschemes 0.5 1.6 0.4Fair value adjustments to available forsale securities - 25.4 22.8Revaluation of available for salesecurities recycled within net profit (44.4) 12.1 12.1Actuarial gain on defined benefitpension scheme net of tax 6.9 6.9 64.7Adjustment in respect of deferred taxfrom 30% to 28% 1.7 - -Share buy-back - (102.7) (201.4)Purchase of own shares (2.1) - -New share capital subscribed 0.1 2.7 5.2Tax on non-qualifying leasehold property - 0.6 -Currency translation net of tax andhedging (6.0) (3.7) (28.3)Cumulative foreign exchange lossesrecycled within net profit 8.6 - - --------- -------- --------Net movement in shareholders' equity (61.1) (111.4) (81.4)Opening shareholders' equity 75.3 156.7 156.7 --------- -------- --------Closing shareholders' equity 14.2 45.3 75.3 ========= ======== ======== 11. Restatement of 2006 full year comparative The Group has amended its accounting policy in relation to exceptional items andthe net return on the defined benefit pension asset. The accounting policy previously reported in the Group's financial statementsfor the year ended 31 December 2006 in relation to exceptional items has beenamended to aid comparability of the Group's results. Further details of therevised policy are provided in note 2. The Group has also reviewed its policy in relation to the classification withinthe income statement of the net return arising on its defined benefit pensionasset. To improve comparability of the results and in accordance with accountingbest practice, the Group has decided to reclassify the net return arising on thedefined benefit pension asset from operating profit to net financing costs. These changes had no impact on the 2006 interim comparative. The table below provides a reconciliation of the impact of the changes on the2006 full year comparative: As published Reclassification As restated Year to Net return on Club Impairment Year to 31.12.06 pension asset disposals 31.12.06 £m £m £m £m £mContinuingoperationsMecca Bingo 63.2 (2.1) (6.1) 8.6 63.6Top Rank Espana 8.9 - - - 8.9Grosvenor Casinos 39.5 (3.2) - - 36.3Blue Square 7.8 - - - 7.8Gaming Shared Services (24.8) (1.2) - - (26.0)Central Costs and other (17.2) (0.2) - - (17.4)Operating profit pre exceptional items 77.4 (6.7) (6.1) 8.6 73.2Interest (net) (33.0) - - - (33.0) -------- -------- -------- -------- --------Adjusted profitbefore taxation 44.4 (6.7) (6.1) 8.6 40.2 Amortisationof equity component of convertible bond (3.0) - - - (3.0)Foreign exchange on inter-company balances(including hedging) 10.0 - - - 10.0Net return on defined benefitpension asset - 6.7 - - 6.7Exceptionalitems 41.5 - 6.1 (8.6) 39.0 -------- -------- -------- -------- --------Profit before taxation 92.9 - - - 92.9 ======== ======== ======== ======== ======== In addition, the 2006 balance sheet comparatives have been restated toreclassify £13.9m of assets from property, plant and equipment to intangibleassets. 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