The Rank Group H2 Earnings Call Highlights

Full-year performance improved: Like-for-like net gaming revenue rose 6% to £834 million, operating profit increased 21% to £78.6 million, and the full-year dividend rose 35% to 3.5 pence per share.

Higher U.K. gaming tax will pressure digital profits: The 40% Remote Gaming Duty reduced profit by £10.1 million this year, with an expected £35 million impact next year. Rank expects to offset about £20 million, leaving an estimated £15 million reduction in digital profitability.

Rank is moderating investment while targeting growth: Planned capital expenditure is expected to fall to about £40 million, alongside continued focus on casino-machine productivity, a streamlined Mecca estate and international expansion. Early new-year revenue rose 8%, and management continues to target at least £100 million in medium-term operating profit.

The Rank Group reported higher full-year revenue and operating profit, supported by growth across its digital, casino and bingo operations, while outlining plans to moderate capital spending and pursue further growth in casino-led and bingo-led gaming. Like-for-like net gaming revenue rose 6% to £834 million, while operating profit increased 21% to £78.6 million. Operating margin improved to 9.4% from 8.1% a year earlier.

The company proposed a final dividend of 2.5 pence per share, taking the full-year dividend to 3.5 pence, up 35% from the prior year.

Management said the result included one quarter of the impact from the higher 40% Remote Gaming Duty, or RGD, on Rank’s U.K.-facing digital operations. The tax increase reduced profit by £10.1 million during the year, though the company offset £8.1 million through lower above-the-line marketing, staffing and supplier costs.

Digital revenue grew 12% in the fourth quarter, the first full quarter following the RGD increase, and rose 8% for the year. The company reduced above-the-line advertising substantially, while modestly increasing performance marketing and maintaining customer incentives and free bets.

The company’s commercial framework is “Join, Play, Stay,” focused on customer acquisition, engagement and retention.

Digital profitability benefited from stronger-than-expected top-line performance in the fourth quarter, though Rank expects the tax burden to weigh more heavily in the coming financial year. The company estimated that the additional RGD cost will total about £35 million next year and said it expects to mitigate about £20 million of that amount, implying an estimated £15 million reduction in digital profitability.

The company has not yet seen a material benefit from competitors leaving the U.K. market, although some smaller operators had exited. The group expects industry consolidation over time and noted that unlicensed operators could become more competitive because they do not bear the same tax and safer-gambling obligations.

Grosvenor Casinos revenue increased 5% during the year, with gaming machines the fastest-growing category. Table-gaming revenue rose 2% in the first half but was flat for the full year, as conflict in the Middle East affected travel from the region during the second half. Reduced Middle Eastern visitation affected revenue by approximately £150,000 to £200,000 per week in the fourth quarter. Early summer trading had shown signs of improvement.

Rank increased its Grosvenor gaming-machine estate by 850 machines, or about 65%, before Ch...