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10 Aug 2009
London, 10 August 2009 -- Moody's Investors Service today affirmed the B1 corporate family rating
on Rank Group plc, and changed the outlook to stable from negative.
The stabilization of the rating outlook incorporates the progress that
Rank has made towards stabilizing its operational performance, combined
with its stated commitment to continue reducing leverage. This
was evidenced in its half-year results for the six months ending
30 June 2009. Despite the weak economic environment, the
company reported slightly higher revenue and lower net debt, and
expects to maintain greater capital investment in 2009 than in 2008.
The improved operational performance has been led by Grosvenor Casinos.
Revenue in this division -- which provides 40% of group revenue
- rose by 4%, and operating profit by 18% (both
on a restated basis), driven by the success of the G Casino format
and an 8% increase in customer visits. Rank continues to
forecast group capital expenditure of GBP 35 to 40 million in 2009,
up from GBP 28 million in 2008, with the increase primarily in projects
to grow the G Casino brand.
Net reported debt of GBP 208 million at 30 June 2009 was down from GBP
273 million at 30 June 2008. This was primarily due to the GBP
59 million VAT refund on interval bingo received in November 2008,
although Rank also generated some modest positive free cash flow in the
first half of 2009. Reported net debt/Ebitda was about 2.5x
at 30 June 2009 (equivalent to about 5.3x LTM gross adjusted debt/Ebitdar
-- incorporating Rank's operating leases - down from
6.1x at the end of 2008); and Rank intends to reduce leverage
further in view of the uncertain economic and credit environment.
Despite these improvements, other parts of the group continue to
show weaknesses. In particular, attendances at Mecca Bingo
- which provides 44% of group revenue - continue
to decline in continuation of a long-term trend. Although
the revenue impact is currently being offset by increased spend per head,
reversal of this trend is important for material improvement of Rank's
credit profile. Rank's smaller divisions also have ongoing
difficulties - with the Spanish bingo business, Top Rank
España, suffering from the weak Spanish economy; and
reduced revenue in the Blue Square sports betting business. Rank
is attempting to address these challenges with various senior management
changes and a more focused marketing approach, although material
improvements may take some time to be evidenced.
Rank's credit profile also continues to be impacted by uncertainties
regarding taxation. The overall UK taxation environment for gaming
remains volatile, as evidenced by the unexpected increase in bingo
and other gaming taxation announced in the 2009 Budget. Rank has
reported that the annualized impact of this increase on operating profit
will be about GBP 9 million. The increases also reinforce the vulnerability
of the gaming sector as a relatively easy target at a time of straitened
Government finances. A further risk relates to the ongoing Government
consultation -- scheduled to conclude in October 2009 - in
relation to tax changes on gaming machines. Although the Government
has indicated that these are intended to be revenue neutral, different
businesses are likely to be impacted in different ways.
Despite the UK High Court upholding Rank's VAT claim on interval
bingo in June 2009, the UK tax authorities continue to appeal the
case. Rank is also making other VAT claims, including GBP
26 million on slot machines. In Moody's view, although
a successful conclusion of all these claims could result in material benefit
to Rank, the legal processes are likely to continue for a number
of years. Furthermore the reversal of any judgment, previously
favourable to Rank, could require the company to refund payments
to the Government in a relatively short timeframe.
Nevertheless the company's liquidity profile is appropriate for
the rating level. Following the repayment of the convertible bond
in January 2009, the next debt maturities are the GBP 150 million
bank term loan and GBP 250 million revolving credit facilities,
which are both due in April 2012. About GBP 170 million of the
revolver is undrawn, with GBP 54 million cash at 30 June 2009;
and Rank should continue to generate modest free cash flow in the absence
of dividend payments, despite higher capital investment.
Rank has stated that dividend payments will remain suspended until there
is an improvement in trading conditions and the market outlook.
Moody's also notes that about 40% of Rank's shares
are held by two companies. The B1 rating does not incorporate the
impact of any change in control or capital structure of Rank related to
future shareholder changes.
The last credit rating announcement for Rank Group Finance plc was on
04 June 2008, when the corporate family rating was confirmed at
B1, with a negative outlook.
The principal methodology used in rating Rank Group plc was the Global
Gaming methodology from August 2005, which can be found at www.moodys.com
in the Credit Policy & Methodologies directory, in the Ratings
Methodologies subdirectory. Other methodologies and factors that
may have been considered in the process of rating this issuer can also
be found in the Credit Policy & Methodologies directory.
Headquartered in Maidenhead, England, Rank is a predominantly
UK gaming group with interests in casinos, bingo, and interactive
gaming. For the six months to 30 June 2009, Rank reported
revenues of around GBP 266 million.
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's affirms Rank Group's B1 corporate family rating, and stabilizes outlook
David G. Staples
Corporate Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
No Related Data.
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