2nd Sep 2005 07:01
Rank Group PLC02 September 2005 The Rank Group Plc Interim Results for the six months ended 30 June 2005 • Revenue up 15% to £870.5m (2004: £757.7m), due largely to a 43% increase in revenue at Blue Square • Group operating profit of £90.6m (2004 - £90.0m before exceptional items) • Adjusted profit before tax* of £71.0m (2004 - £72.4m) • Adjusted earnings per share* of 8.2p (2004 - 9.0p); basic earnings per share of 0.7p (2004 - 3.2p) • Gaming operating profit down 5% to £52.0m (2004 - £54.8m), due mainly to cost increases at Mecca and weaker sportsbook margins at Blue Square • Hard Rock operating profit up 40% to £16.4m (2004 - £11.7m), with improved like for like sales in restaurants and increased royalties from hotels/casinos • Deluxe Film operating profit up 5% to £29.0m (2004 - £27.6m), reflecting significant growth in Creative Services • Profit after tax for the period from continuing operations was £40.7m (2004 - £53.2m) • Net debt increased to £736.9m (2004 year end - £637.7m), reflecting contract advances by Deluxe Film and the impact of foreign currency translation on US borrowings • Interim dividend increased by 4% to 5.0p (2004 - 4.8p) * Adjusted profits and earnings per share - Profits and earnings before discontinued operations, exceptional items, foreign exchange on inter-company balances and amortisation of equity component of convertible bond. (See note 6.) Commenting on the results, Mike Smith, Chief Executive, said: "We achieved a significant increase in revenues during the first half reflecting2004 acquisitions and developments and considerable growth in Blue Square.Profits, however, were flat as weak sportsbook margins at Blue Square and costincreases at Mecca offset solid results elsewhere. Development across all businesses continues apace, particularly in DeluxeCreative Services, Hard Rock hotels, and Grosvenor Casinos in the UK. We haveinvested strongly in our Gaming business over the last five years in preparationfor UK gambling deregulation and we are well placed to benefit from the earlyfreedoms that will come into effect from October this year and those changesthat will come later. We have continued to make progress on the separation of Deluxe from the rest ofthe Group. The sale of Deluxe Media is advancing. The separation of Deluxe Filmis now more likely to be achieved by way of a sale. The sale process isprogressing but, as we have said previously, it is a complex transaction andwill only be completed on terms that the Board considers to be in the bestinterest of shareholders." Enquiries: The Rank Group Tel: 020 7706 1111Mike Smith, Chief ExecutivePeter Gill, Finance DirectorMike Davies, Director of Investor Relations Press Enquiries: The Maitland Consultancy Tel: 020 7379 5151Angus MaitlandSuzanne Bartch RG/15/04 Analyst Meeting, webcast and conference call details: Friday 2 September 2005 There will be an analyst meeting at Merrill Lynch, 2 King Edward Street, London,EC1A 1HQ, starting at 9.30am. There will be a simultaneous webcast andconference call of the meeting. To register for the live webcast, pleasepre-register for access by visiting the Group website, (www.rank.com). Detailsfor the conference call are given below. A copy of the webcast and slidepresentation given at the meeting will be available on the Group's web-sitelater today. An interview with Mike Smith, Chief Executive, in video/audio and text will alsobe available from 7.00am GMT on 2 September 2005 on: http:// www.rank.com and onhttp://www.cantos.com. Conference call details: Friday 2 September 2005 9.20am Please call 0800 279 9640 (UK) or +44 (0) 20 7365 1843 (International). 9.30 am Meeting starts Forward-looking statements. This announcement includes 'forward-lookingstatements'. These statements contain the words "anticipate", "believe","intend", "estimate", "expect" and words of similar meaning. All statementsother 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 in whichthe Company will operate in the future. These forward-looking statements speakonly as at the date of this announcement. Subject to the Listing Rules of the UKListing Authority, the Company expressly disclaims any obligation or undertakingto disseminate any updates or revisions to any forward-looking statementscontained herein to reflect any change in the Company's expectations with regardthereto or any change in events, conditions or circumstances on which any suchstatement is based. Past performance cannot be relied upon as a guide to futureperformance. CHIEF EXECUTIVE'S REVIEW Results Rank's first half performance was mixed. Revenue from continuing operations rose15% to £870.5m, while adjusted operating profit remained broadly flat at £90.6mreflecting good performances from Deluxe Film (driven by gains in its digitalservices businesses - Creative Services), Hard Rock, and solid results incasinos, offset by a slightly weaker performance in bingo. Deluxe Film revenues increased 9% to £201.7m, due largely to a significantincrease in revenue from Creative Services. Operating profit increased by 5% to£29.0m, as lower film processing margins in North America were offset by higherprofits in Creative Services, which benefited from the impact of acquisitionsmade during the second half of last year. Hard Rock increased revenue by 7% to £121.3m and operating profit increased by40% to £16.4m. This performance was driven by increased food and beverage salesin company owned cafes and a higher contribution from hotels and gaming licencefees. Overall, Gaming revenues grew 20% to £533.5m, driven by increases in revenues atBlue Square and casinos. However, weak sportsbook margins at Blue Square andlower profits at Mecca contributed to a 5% fall in operating profit to £52.0m. Revenue in UK casinos was up 7% compared with last year driven by a 15% rise inadmissions, although handle per head fell by 7%. Provincial casinos achievedsignificantly higher revenues, partially assisted by the impact of the newBolton and Stoke casinos that opened in the second half of last year. Operatingprofit for Grosvenor Casinos increased by 6%, due mainly to strong performancesby the London based casinos. Revenue at Mecca UK at £133.9m was level with the same period last year, aslower admissions were offset by increased spend per head. However, operatingprofit was 6% lower as a consequence of higher costs due to increases in theminimum wage and higher energy costs. The Spanish bingo operation, Top RankEspana, continued to perform well, benefiting from the opening of a new club inthe second half of last year to increase revenues by 18% and operating profit by38%. Blue Square achieved a 43% increase in revenue (where revenue is recorded on agross basis as settled stakes), as betting volumes were significantly higherthan in the same period last year and revenue from non-sportsbook activitiesexceeded the sportsbook for the first time. However, in line with a number ofour competitors, sportsbook margins continued to be weak throughout the firsthalf contributing to an operating loss of £1.0m, despite an improvement in theprofitability of games. An increased operating loss before exceptional items at Deluxe Media wasprincipally due to lower volumes in Distribution Services, as a result of thepreviously announced loss of a major studio customer, together with increasedraw material costs in DVD manufacturing. Strategic progress and development We have continued to invest in the long-term growth of our businesses and therewere a number of developments across the Group during the first half of theyear. Gaming The pace of development in our Gaming division has accelerated during the firsthalf of the year. Licences for further casinos in Swansea, Dundee, Oldbury,Acocks Green and Reading have been approved and the new casinos are expected toopen over the next two and half years. Applications for a further five casinosare in place. The relocation of the Empire Street, Manchester casino to Bury NewRoad, a larger and better located site, is expected to be completed in the earlypart of 2006 and the relocation of the Ramsgate Thanet casino is also expectedto be completed in early 2007. In Bingo, we are on track to open two new Mecca clubs in 2006, at Crewe andPaisley, while in Edinburgh we will be relocating the existing club fromEdinburgh Palais to Fountain Park. During the first half we continued to reviewour portfolio and closed clubs in Smethwick, East Ham and Blackwood. InBlackpool we combined the Church Street club into the Talbot Road club. Gambling Act Update The early freedoms of UK gambling deregulation - the abolition of the 24-hourrule for casinos and bingo clubs, the introduction of more slot machines incasinos, and the doubling of slot machine stakes and prizes - are now expectedto come into effect in October this year. By the end of October, we expect tohave 678 jackpot and hybrid machines and 790 auto-roulettes in our UK casinos.Combined, this will represent a 52% increase over the number available at thebeginning of the year. Further reforms of UK gambling, including the relaxation of advertisingrestrictions for casinos, are now expected to come into effect during 2007. Wehave had an ongoing programme of re-investment in our Gaming estate and over thelast five years we have invested over £150m, preparing us well for UK gamblingderegulation. In addition to the new casino licences that have already beenapproved and applications that are in place under the existing regulations, weintend to apply for all 17 licences that are proposed under the new GamblingAct. Hard Rock We have relocated the New York cafe to the heart of Times Square; the cafeopened on 12 August 2005. Reassessment of the company owned estate has led tothe closure of the Choctaw Beach Club and underperforming cafes in St. Thomasand Newport Beach. In early July, the London cafe was temporarily closed due toa fire; the cafe is being refurbished and is scheduled to reopen in lateSeptember. We anticipate that the profit impact of the closure will be largelycovered by insurance. In May a new franchised cafe was opened in Caracas, Venezuela and anunderperforming franchised cafe in Reykjavik, Iceland was closed. During thesecond half of the year, franchised cafe openings are planned for Gran Canaria,Belo Horizonte and Mumbai. In hotels, the conversion of the Hard Rock Hotel in Madrid is well underway andis expected to reopen in 2006 as part of the joint venture agreement with SolMelia. The Hard Rock Hotel in San Diego, which is expected to open in 2007, hasnow been expanded to be a 400 room condo hotel. We have now completed plans forthe conversion of the Paramount Hotel in New York into a flagship Hard RockHotel. Hard Rock has entered into an agreement with Intrawest Corporation to developlifestyle Hard Rock Hotels at select Intrawest resorts. Hard Rock and Intrawestare finalising specific locations and will shortly announce the first lifestylecondominium-hotel. The Seminole hotel/casinos are performing well. The hotel/casino and cafe inBiloxi, Mississippi were originally scheduled to open on 1 September 2005.However, they were severely damaged by Hurricane Katrina and the opening hasbeen postponed. The New Orleans cafe also suffered substantial damage, and it istargeted to reopen by the end of the year. Deluxe Film During the first half we acquired Fotofilm Madrid, a leading Spanish filmlaboratory, and extended the capacity of our Barcelona film laboratory. We alsocompleted the acquisition of Film Treat, a film rejuvenation business based inLos Angeles and New York, at the start of the year. Within Creative Services,the integration of the acquisitions made in 2004 is complete and new facilitieshave been made available in Burbank, California. Creative Services represented24% of Deluxe Film's operating profit during the first half. We also investedheavily in contract advances in the first half of the year and Deluxe Film nowhas one of the strongest contract advance positions in its history. Cash flow and financing Operating cash flow decreased to £5.3m (2004 - £54.8m) due to the payment ofDeluxe Film contract advances in the first half of the year offset by lowercapital expenditure. Overall, net debt has increased since the year end to£736.9m from £637.7m. This reflects the payment of advances, consideration onacquisitions, and the impact of a stronger dollar on our US borrowings. Current trading and outlook Current trading in the period since 30 June 2005 shows a similar pattern to thatexhibited in the first half. The immediate outlook is for little change, withfurther improvement in Deluxe Film and Hard Rock offset by subdued performancein the current UK Gaming market. The impact of UK gambling deregulation fromOctober 2005 will be positive but is unlikely to be material in the currentyear. Overall, we expect adjusted profit before tax for the year from ourcontinuing operations to be broadly flat on 2004. Dividend We are pleased to announce an increase in the interim dividend to 5.0p (2004 -4.8p). Group structure In September last year we announced that Rank was reviewing the possibility ofseparating Deluxe from the rest of the Group and this process remains apriority. The planned sale of Deluxe Media is advancing. The separation ofDeluxe Film is now more likely to be achieved by way of sale. The transaction iscomplex and, whilst we remain hopeful that this separation will be achieved, itwill only be completed on terms that the Board considers to be in the bestinterest of shareholders. SUMMARY OF RESULTS (from continuing operations) Revenue Profit before exceptional items 2005 2004 2005 2004 £m £m £m £m Gaming 533.5 443.9 52.0 54.8 Hard Rock 121.3 112.9 16.4 11.7 Deluxe Film 201.7 185.4 29.0 27.6 US Holidays 14.0 15.5 1.1 1.4 Central costs and other - - (7.9) (5.5) -------- -------- -------- -------- 870.5 757.7 90.6 90.0 Net (loss) income from associates and jointventures - post tax (0.1) 0.2 Managed businesses' interest (19.5) (17.8) -------- --------Adjusted profit before tax 71.0 72.4Foreign exchange on inter-company balances (9.3) (1.4)Amortisation of equity component ofconvertible bond (1.5) - -------- --------Profit before tax and exceptional 60.2 71.0itemsExceptional items - (4.1) -------- --------Profit before tax 60.2 66.9 ======== ======== Adjusted earnings per share 8.2p 9.0pBasic earnings per share - continuing operationsbefore exceptional items 6.4p 9.6pDividend per share 5.0p 4.8p Group revenue from continuing operations, as reported, was up 15%, driven by anincrease in revenue at Blue Square. Group operating profit before exceptional items was 1% above 2004. Deluxe Filmreported increased profits as a consequence of growth in its Creative Servicesbusiness. Hard Rock achieved significantly higher profits due to a largeincrease in the contribution from hotels/gaming and an improved performance incompany owned cafes. Gaming profits were lower despite higher revenues becauseof increased costs at Mecca UK and weaker sportsbook margins in Blue Square.Central costs have increased to £7.9m (2004: £5.5m) due to increased compliancecosts. The interest charge was £1.7m higher than in 2004 due both to higher levels ofdebt and increased US dollar interest rates. The effective tax rate on adjusted profit is 26.6% (2004 - 26.3%). Therate has benefited from the availability of overseas tax losses. Adjusted Group profit before tax was £71.0m, 2% below last year. Adjustedearnings per share, before exceptional items, was 8.2p (2004 - 9.0p) reflectingthe change in tax rate and an increase in the average number of shares in issue. In line with IFRS accounting, foreign exchange movements on certaininter-company loans are recognised in the income statement as financial gains orlosses. In this interim period a charge of £9.3m has been made (2004 - a £1.4mcharge). The amortisation of the convertible bond's equity component hasresulted in a £1.5m charge being recognised in the income statement in line withIAS 32 & 39, which have been applied from 1st January 2005. The interim dividend per share has been increased by 4% to 5.0p (2004 - 4.8p). The following table sets out the divisional results and profit before tax afterexceptional items. Profit before tax 2005 2004 £m £m Gaming 52.0 54.8 Hard Rock 16.4 11.7 Deluxe Film 29.0 27.6 US Holidays 1.1 1.4 Central costs and other (7.9) (9.6) ------------ ------------ Continuing operations 90.6 85.9 Net (loss) income from associates and joint ventures (0.1) 0.2 Financing charge (30.3) (19.2) ------------ ------------Profit before tax 60.2 66.9 ============ ============ GAMING Revenue Operating profit (loss) 2005 2004 2005 2004 £m £m £m £mMecca BingoUK 133.9 133.9 34.4 36.5Spain 15.4 13.0 4.7 3.4 ---------- ---------- ---------- ---------- 149.3 146.9 39.1 39.9Grosvenor CasinosUK 94.3 88.4 13.4 12.7Belgium 6.0 6.0 0.5 1.0 ---------- ---------- ---------- ---------- 100.3 94.4 13.9 13.7 Blue Square 283.9 198.2 (1.0) 1.3 ---------- ---------- ---------- ---------- 533.5 439.5 52.0 54.9 Rank Leisure Machine - 4.4 - (0.1)Services ---------- ---------- ---------- ---------- 533.5 443.9 52.0 54.8 ========== ========== ========== ========== Mecca Bingo 2005 2004 Change %UK Bingo statisticsAdmissions ('000s) 10,122 10,710 (5)%Spend per head (£) 13.23 12.50 6 % Revenue at Mecca UK was flat at £133.9m. Admissions were down 5.5%, due to alower frequency of visits by active members, although this was compensated forby higher spend per head which rose 5.8% compared with the first half last year.Operating profit at Mecca UK fell 5.8% to £34.4m due mainly to an increase inenergy costs and the impact of the introduction of the higher minimum wage. Thisweaker performance was partly offset by a 38.2% increase in operating profit atTop Rank Espana, due to the acquisition of a club in Sabadell in the second halfof 2004 and a change in a local gaming tax. The split of revenue by activity is shown below. Analysis of UK bingo revenue 2005 2004 Change £m £m % Main stage bingo 27.4 27.0 1%Interval games 63.2 64.2 -2%Gaming machines 30.9 30.1 3%Food, beverage & other 12.4 12.6 -2% ------------- ----------- ----------- 133.9 133.9 0% ============= =========== =========== Grosvenor Casinos Revenue Operating profit 2005 2004 2005 2004 £m £m £m £mUK London - upper 10.8 11.6 2.1 1.7London - other 27.6 25.9 4.4 4.2Provincial 49.4 45.8 10.8 11.0Hard Rock 6.5 5.1 0.1 (0.5)Overheads - - (4.0) (3.7) ----------- ----------- ----------- ----------- 94.3 88.4 13.4 12.7 =========== =========== =========== =========== Grosvenor Casinos in the UK enjoyed a solid first half. Overall revenues were up6.7% at £94.3m and operating profit at £13.4m was 5.5% ahead of last year,driven by bad debt recoveries at London upper casinos and stronger performanceat our other London casinos. These factors were partly offset by lower overallwin margins in Provincial casinos. Admissions Handle per head Win % ('000s) (£) 2005 2004 2005 2004 2005 2004UKLondon - upper 26 25 2,320 2,366 17.7 19.1London - other 301 305 480 466 17.7 17.1Provincial 1,587 1,319 159 178 16.3 16.7Hard Rock 192 182 157 141 18.0 16.5 Overall, at the Group's London casinos, handle was up 1.6% and win margin waslevel at 17.7%, resulting in revenue being 2.4% higher at £38.4m. At the Group'stwo London upper casinos, the Clermont and the Park Tower, handle was up 0.5%and admissions were 4.0% higher, although win margin fell from 19.1% to 17.7%,driven primarily by a lower win margin at the Clermont. Bad debt recoveries of£0.8m contributed to a 23.5% improvement in operating profit. At our other London casinos, a 3.0% increase in handle per head resulted in a6.6% increase in revenue. The increase in revenue, combined with a higher winmargin of 17.7% contributed to a 4.8% increase in operating profit to £4.4m. Provincial casinos achieved a 7.9% increase in revenue, driven by a 20.3% risein attendance and the opening of Bolton and Stoke in 2004, although a 10.7%reduction in handle per head and a lower win margin of 16.3% resulted inoperating profit falling by 1.8% to £10.8m. The two Hard Rock casinos achieved a 27.5% increase in revenue. The Londoncasino enjoyed a particularly strong first half more than offsetting a weakerperformance at the Manchester casino. Overall, a prior year operating loss of£0.5m was turned into a first half operating profit of £0.1m, reflected thesteady profits now being made in London. Blue Square Revenue Gross win 2005 2004 2005 2004 £m £m £m £mOnline 250.9 168.2 10.8 10.8Telephone 33.0 30.0 2.1 2.4 ----------- ----------- ----------- ----------- 283.9 198.2 12.9 13.2 =========== =========== =========== =========== Blue Square achieved a 43% increase in revenue compared with the same periodlast year, with revenue from games exceeding the sportsbook for the first time.The casinos/games business experienced strong first half revenue growth on alike-for-like basis. In sportsbook, which now has over 156,000 active customers,a significant increase in revenue was driven principally by higher bet volumes.However, in line with competitors, sportsbook margins remained weak throughoutthe period. Overall, the business made an operating loss of £1.0m (2004 - profit£1.3m). In Blue Square, we continue to invest in marketing and games development.Several new games were introduced during the first half and both poker and bingoproducts are now fully operational. HARD ROCK Revenue Operating profit 2005 2004 2005 2004 £m £m £m £m Company operatedCafes 110.2 105.9 12.7 11.2 Third party operatedCafes 2.6 2.2 2.1 2.0Hotels/casinos 6.2 2.4 5.8 2.4 Territory sales/other 2.3 2.4 0.6 (0.3) Equity distributions - - 2.5 2.0 Overheads - - (7.3) (5.6) --------- --------- --------- --------- 121.3 112.9 16.4 11.7 ========= ========= ========= ========= Hard Rock had a good first half, increasing revenue by 7.4% to £121.3m andoperating profit by 40.2% to £16.4m. At constant exchange rates, revenue grew by8.8% and operating profit grew by 42.4%. Improved performance in food andbeverage sales in company owned cafes and a higher contribution from gamingdrove the overall positive performance. Overheads increased to £7.3m from £5.6m,reflecting Hard Rock's investment in brand development, advertising, andimproving franchise operational standards. Hard Rock like for like cafe sales % Food and Merchandise Total BeverageTo 30 June 2005 North America 1.1% -6.3% -1.4% Europe 4.9% 6.3% 5.4% Total 2.2% -3.0% 0.4% Revenue in company owned cafes increased by 4.1%, with sales particularly strongin locations with heavy tourist footfall, including Barcelona, New York, Rome,and San Francisco. Like for like sales in company owned cafes were up 0.4%overall, with restaurant sales up 2.2%. Merchandise sales were down 3.0%,despite a strong uplift in Europe. Overall, sales performance in Europe outpacedNorth America and cafe profits were enhanced by ongoing successful initiativesto reduce labour and product costs. Revenue from hotels/casinos rose to £6.2m from £2.4m last year and operatingprofit to £5.8m from £2.4m, as the Hard Rock Florida casinos, which opened lastyear, made a positive impact. Territory sales and other were down slightly, although this was more than offsetby higher hotel retail profits. Equity distributions from our 25% share in three hotels in Orlando were £0.5mhigher, reflecting the strong operating performance of those properties. DELUXE FILM Revenue Operating profit 2005 2004 2005 2004 £m £m £m £m Film Laboratories and physical 165.2 166.0 21.9 23.8distributionCreative Services 36.5 19.4 7.1 3.8 ---------- ---------- ---------- ---------- 201.7 185.4 29.0 27.6 ========== ========== ========== ========== Volumes at the Film Laboratories business were marginally stronger than in thefirst half last year, rising 0.9% to 2.3 billion feet of film processed. Majortitles produced during the first half included Star Wars III - Revenge of theSith, Mr and Mrs Smith, Sin City, and War of the Worlds. Operating profit was5.1% higher than last year at £29.0m, as lower overall margins in filmlaboratories were more than offset by a significant rise in profits fromCreative Services, which benefited from the impact of acquisitions made duringthe second half of last year and accounted for 24.5% of Deluxe Film's operatingprofit. Since the half year, volumes have remained strong. Major titles thathave been produced since the half year include The Fantastic Four and WeddingCrashers, with Memoirs of a Geisha and The Legend of Zorro due for release laterin the second half. During the first half net Film contract advance payments of £53.0m were made;these payments mainly related to contracts won in prior years. These significantinvestments in securing major contracts have left Deluxe Film with one of thestrongest contract advance positions in its history. Customers comprising 82% of2004 volume are now under contract until at least the end of 2007. Since the start of the year, Deluxe has acquired Fotofilm Madrid, a leadingSpanish film laboratory, and extended the capacity of its Barcelona filmlaboratory. Deluxe also completed the acquisition of Film Treat, a filmrejuvenation business based in Los Angeles and New York, at the start of theyear. The acquisitions have not been presented separately in the incomestatement as they are not material to the Group results. US HOLIDAYS US Holidays' operating profit was £1.1m (2004 - £1.4m). The business generatednet cash of £3.6m (2004 - £5.7m). Central costs and other 2005 2004* £m £m Central costs (7.9) (6.0)Other income - 0.5 -------------- -------------- (7.9) (5.5) ============== ==============*excluding exceptional items Central costs increased on 2004 due largely to increased compliance feesassociated with the adoption of IFRS and compliance with the Sarbanes Oxley Act. Associates and joint ventures - post tax 2005 2004 £m £m Hard Rock Hotel joint venture (0.7) -Deluxe associate and joint venture 0.6 0.2 -------------- --------------- (0.1) 0.2 ============== =============== Financing charges 2005 2004 £m £m Interest payable and other charges 22.4 24.9Interest receivable (2.9) (7.1) -------------- ---------------Managed businesses' interest 19.5 17.8 Foreign exchange on inter-company balances 9.3 1.4Amortisation of equity component of convertible 1.5 -bond -------------- --------------- 30.3 19.2 ============== =============== Taxation The effective tax rate on adjusted group profit is 26.6% (2004 - 26.3%) and postforeign exchange on inter-company balances and amortisation of the convertiblebond the rate is 32.4%. The rate has benefited from the availability of overseastax losses. Dividend An interim dividend of 5.0p per Ordinary share (2004 - 4.8p) will be paid on 14October 2005 to those shareholders on the register on 16 September 2005. Exchange rates The net translation effect of changes in average exchange rates between 2004 and2005 was to decrease revenue by £1.6m and operating profit by £0.7m. The averagerates and the impact on divisional results are shown below: Average exchange rate Impact on H1 2005 2005 2004 Revenue Operating profit £m £m US dollar 1.86 1.82 (4.0) (0.7)Canadian dollar 2.27 2.36 2.3 -Euro 1.46 1.46 0.1 - ---------- ---------- (1.6) (0.7) ========== ========== Gaming - -Hard Rock (1.5) (0.3)Deluxe Film 0.2 (0.4)US Holidays (0.3) - ---------- ---------- (1.6) (0.7) ---------- ----------Managed businesses' interest 0.2 ----------Net impact on adjusted profitbefore tax (0.5) ---------- Discontinued operations Deluxe Media Services (DMS) is classified as a business held for sale. As aresult, DMS is reported as a discontinued operation. The results of DMS areanalysed below. Analysis of discontinued operations 2005 2004Operating (loss) profit before exceptional items £m £m Video duplication (2.1) (4.3)DVD/CD replication (6.9) (5.2)Distribution services (3.4) 0.4 ---------- ---------- (12.4) (9.1)Exceptional items (13.2) (27.9) ---------- ----------Operating loss (25.6) (37.0)Net finance costs (0.8) (0.2) ---------- ----------Loss before tax (26.4) (37.2)Tax (9.2) 3.0 ---------- ----------Loss after tax (35.6) (34.2) ========== ========== Exceptional items 2005 2004 £m £m DMS restructuring (13.2) (27.9)Loss on disposal - (4.1) ---------- ---------- (13.2) (32.0) Tax on exceptional items 0.7 0.4 ---------- ---------- (12.5) (31.6) ========== ========== The exceptional charge in 2005 relates to Deluxe Media Services. These chargesmainly relate to the closure of VHS manufacturing operations in the UK, Spain,Sweden and the US, and the closure of the German business. The exceptionalcharge of £13.2m comprises redundancy and other staff costs of £7.6m, assetimpairments of £3.6m, onerous leases of £1.6m and other costs of £0.4m. Prior year exceptional items also mainly relate to Deluxe Media Services, whichin the first half of 2004 was informed by a major studio that it would betransferring its business to another supplier. An exceptional charge of £23.9m,comprising an impairment charge of £18.8m, onerous lease provisions of £3.8m andother costs of £1.3m, was recorded. An exceptional charge of £4.0 relating to aDeluxe Media Services restructuring programme begun in 2003 was also incurred inthe first half of 2004. A £4.1m exceptional loss was also recognised principallyon the disposal of the Rank Leisure Machine Services business at the start of2004. Cash flow 2005 2004 £m £mCash flow from operating activitiesBefore Deluxe contract advances 85.8 91.6Deluxe contract advances, net of repayments (50.9) 17.9 ---------- ---------- 34.9 109.5Capital expenditure (30.6) (55.3)Fixed asset disposals 1.0 0.6 ---------- ----------Operating cash flow 5.3 54.8Acquisitions and investments (21.0) (14.9)Disposals & refinancing proceeds 18.1 29.9 ---------- ---------- 2.4 69.8Interest, tax and dividend payments (81.1) (57.4) ---------- ----------Cash (outflow) inflow (78.7) 12.4 ========== ========== Cash inflow from operating activities was £74.6m lower than 2004. This islargely due to a net outflow of £50.9m in respect of contract advances inDeluxe. Capital expenditure was £30.6m and is analysed below: 2005 2004 £m £m Gaming 7.5 29.6Hard Rock 6.3 5.8Deluxe Film 12.6 5.3US Holidays 0.3 0.9 ---------- ---------- 26.7 41.6Deluxe Media 3.9 13.7 ---------- ---------- 30.6 55.3 ========== ========== Acquisitions and investments principally relate to cash paid to acquire Fotofilmand Film Treat and deferred consideration on the prior period acquisitions ofRitek, ETS, Disctronics, and Capital FX. Refinancing proceeds within cash flowrelate to £18.1m received on refinancing the hotel joint venture in Orlando. The Group has incurred £13m of transaction costs up to June 2005, relating tothe planned separation of Deluxe Film and Deluxe Media. These have been carriedas deferred costs on the balance sheet. Interest, tax and dividends are £23.7m higher than 2004, largely reflecting anet tax outflow of £2.3m compared with a net tax inflow of £17.4m in the sameperiod last year. Net debt Net debt at 30 June 2004 was £736.9m compared to £696.8m at the time of lastyear's interim report and £637.7m as at 31 December 2004. The increase is dueprincipally to contract advances at Deluxe Film and foreign exchange translationof US debt as a consequence of a stronger US dollar. GROUP INCOME STATEMENT - INTERIM (unaudited) 2005 2004 Before Before Exceptional Exceptional Exceptional Exceptional Items Items Total Items Items Total £m £m £m £m £m £m -------- -------- -------- -------- -------- -------Continuing operations Revenue 870.5 - 870.5 757.7 - 757.7 Cost of sales (689.7) - (689.7) (588.8) - (588.8) -------- -------- -------- -------- -------- --------Gross profit 180.8 - 180.8 168.9 - 168.9Otheroperating costs (45.2) - (45.2) (39.9) - (39.9)Otheroperating income 5.1 - 5.1 4.7 - 4.7General andadministration (50.1) - (50.1) (43.7) - (43.7)Exceptionalitems - Loss ondisposal of - - - - (4.1) (4.1)business -------- -------- -------- -------- -------- --------Operating profit 90.6 - 90.6 90.0 (4.1) 85.9 Net finance costs (21.0) - (21.0) (17.8) - (17.8)Foreign exchangeloss on inter-company loans (9.3) - (9.3) (1.4) - (1.4) Share of posttax (losses)profits inassociates andjoint ventures (0.1) - (0.1) 0.2 - 0.2 -------- -------- -------- -------- -------- --------Profit (loss)before tax 60.2 - 60.2 71.0 (4.1) 66.9 Taxation (note 3) (19.5) - (19.5) (13.7) - (13.7) -------- -------- -------- -------- -------- --------Profit (loss)for the periodfrom continuing 40.7 - 40.7 57.3 (4.1) 53.2operations Discontinued operationsOperations heldfor sale (note 2) (23.1) (12.5) (35.6) (6.7) (27.5) (34.2) -------- -------- -------- -------- -------- --------Profit (loss)for the period 17.6 (12.5) 5.1 50.6 (31.6) 19.0 ======== ======== ======== ======== ======== ======== Profit (loss)attributableto minority 0.6 - 0.6 0.1 (0.5) (0.4)interest Profit (loss)attributableto equity 17.0 (12.5) 4.5 50.5 (31.1) 19.4shareholders -------- -------- -------- -------- -------- -------- 17.6 (12.5) 5.1 50.6 (31.6) 19.0 ======== ======== ======== ======== ======== ======== Basic earningsper share 0.7p 3.2p Diluted earnings 0.7p 3.3pper share Further earnings per share information is provided in Note 5 GROUP INCOME STATEMENT (unaudited) 6 months to 6 months to Year to 30.6.05 30.6.04 31.12.04 £m £m £mContinuing operations Revenue 870.5 757.7 1,568.2 Cost of sales (689.7) (588.8) (1,187.5) ---------- ----------- ---------Gross profit 180.8 168.9 380.7 Other operating costs (45.2) (39.9) (90.3)Other operating income 5.1 4.7 8.1General and administration (50.1) (43.7) (102.6)Operating exceptional costs - (4.1) (41.5) ---------- ----------- ---------Operating profit 90.6 85.9 154.4 Net finance costs (21.0) (17.8) (39.9)Foreign exchange (loss) gain oninter-company loans (9.3) (1.4) 11.4 ---------- ----------- ---------Total finance costs (30.3) (19.2) (28.5) Share of post tax (losses) profits in (0.1) 0.2 -associates and joint ventures Profit before tax 60.2 66.9 125.9 Taxation (note 3) (19.5) (13.7) (22.1) ---------- ----------- ---------Profit after tax 40.7 53.2 103.8 Operations held for sale (note 2) (35.6) (34.2) (118.1) ---------- ----------- ---------Profit (loss) for the period 5.1 19.0 (14.3) ========== =========== ========= Basic earnings (loss) per share 0.7p 3.2p (2.5)p Diluted earnings (loss) per share 0.7p 3.3p (1.7)p Further earnings per share information is provided in Note 5. GROUP BALANCE SHEET (unaudited) 30.6.05 30.6.04 31.12.04 £m £m £m Non-current assetsIntangible assets 259.1 248.8 252.3Tangible assets 580.7 633.0 577.1Investments 52.5 55.2 55.3Other receivables 228.4 202.7 293.3 ---------- ----------- --------- 1,120.7 1,139.7 1,178.0 ---------- ----------- --------- Current assetsInventories 62.3 62.4 51.7Trade and other receivables 303.6 494.6 232.1Cash and deposits 114.9 117.0 75.6Assets held for sale 122.3 - 174.0 ---------- ----------- --------- 603.1 674.0 533.4 Current liabilitiesLoan capital and borrowings (32.2) (245.2) (19.8)Trade and other payables (207.7) (365.8) (271.2)Current tax liabilities - (38.9) (9.5)Liabilities held for sale (98.6) - (142.8) ---------- ----------- --------- (338.5) (649.9) (443.3) Net current assets 264.6 24.1 90.1 ---------- ----------- --------- Non-current liabilitiesLoan capital and borrowings (820.1) (568.6) (692.1)Other non-current liabilities (164.8) (99.7) (139.6)Provisions (31.9) (45.5) (36.4) ---------- ----------- --------- (1,016.8) (713.8) (868.1) ========== =========== =========Net assets 368.5 450.0 400.0 ========== =========== ========= Shareholders' equityCalled up share capital 62.5 60.1 62.4Share premium account 90.0 25.9 88.3Other reserves 206.0 349.0 240.6 ---------- ----------- ---------Shareholders' funds 358.5 435.0 391.3Equity minority interests 10.0 15.0 8.7 ---------- ----------- --------- 368.5 450.0 400.0 ========== =========== ========= GROUP CASH FLOW (unaudited) 6 months 6 months Year to to 30.6.05 to 30.6.04 31.12.04 £m £m £m Cash flows from operating activities (note 4) Cash generated from operations 34.9 109.5 263.3Interest paid (17.5) (18.6) (44.2)Income tax (paid) received (2.3) 17.4 11.9 ---------- ---------- ---------Net cash from operating activities 15.1 108.3 231.0 Cash flows from investing activities Acquisition of subsidiaries (17.9) (14.7) (70.5)Purchase of property, plant and equipment (30.6) (55.3) (115.6)Proceeds from sale of property, plant andequipment 1.0 0.6 7.4Net cash acquired on acquisition ofsubsidiaries 1.0 (0.4) 0.9Investments in associates and jointventures (4.1) (0.2) (5.1)Sale of businesses (net of cash disposed) - 30.3 29.9Purchase of investments - - (0.1)Capital distribution from trade assetinvestment 18.1 - - ---------- ---------- ---------Net cash used in investing activities (32.5) (39.7) (153.1) Cash flows from financing activities Dividends paid to Company shareholders (61.2) (55.5) (84.5)Dividends paid to minority interests (0.1) (0.6) (1.9)Issue (redemption) of share capital 1.8 1.9 2.8Net draw down of debt 113.0 (56.2) (69.0)Finance lease principal payments (2.5) (3.5) (5.1) ---------- ---------- ---------Net cash used in financing activities 51.0 (113.9) (157.7) ---------- ---------- ---------Net increase (decrease) in cash and cashequivalents 33.6 (45.3) (79.8) Cash and cash equivalents at beginning ofperiod 65.5 146.5 146.5Exchange gains (losses) on cash 0.1 (3.5) (1.2) ---------- ---------- ---------Cash and cash equivalents at end ofperiod 99.2 97.7 65.5 ========== ========== ========= STATEMENT OF RECOGNISED INCOME AND EXPENSE 6 months 6 months Year to to 30.6.05 to 30.6.04 31.12.04 £m £m £m Profit (loss) for the financial period 5.1 19.0 (14.3)Currency translation differences onforeign currency net investments 12.5 6.8 (21.2)Actuarial (loss) gain on defined benefitpension scheme (22.7) 29.0 29.6Movement on deferred tax relating todefined benefit pension scheme 6.8 (8.9) (8.6)Revaluation of available for salesecurities 7.4 - - ---------- ----------- ---------Total recognised gains and losses forperiod 9.1 45.9 (14.5) ========== =========== ========= STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY 6 months 6 months Year to to 30.6.05 to 30.6.04 31.12.04 £m £m £m Profit (loss) attributable to equityshareholders 4.5 19.4 (15.0)Dividends (61.2) (55.5) (84.5)Credit in respect of employee shareschemes 1.9 1.5 2.5Other recognised gains and losses (net) 4.0 26.9 (0.2)Adjustment to purchase price onacquisition (goodwill) - - (18.8)New share capital subscribed 1.8 9.0 73.6 ---------- ----------- ---------Net movement in shareholders' equity (49.0) 1.3 (42.4) Opening shareholders' equity as previously stated 391.3 433.7 433.7 Adoption of Financial Instruments IAS32/39 16.2 - - ---------- ----------- ---------Opening shareholders' equity as restated 407.5 433.7 433.7 ---------- ----------- ---------Closing shareholders' equity 358.5 435.0 391.3 ========== =========== ========= NOTES TO THE INTERIM FINANCIAL STATEMENTS (unaudited) 1. Accounting policies The Group adopted International Financial Reporting Standards (IFRS) on 1January 2005. The principal accounting policies adopted under IFRS and appliedin the preparation of the interim financial statements are available on theGroup's website, www.rank.com. For the year ended 31 December 2005, the Group is required to prepare its annualfinancial statements in accordance with accounting standards adopted for use inthe European Union ("EU"). As such those financial statements will take accountof the requirements and options in IFRS 1 "First-time adoption of InternationalRelated Shares:
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