Rank Regulatory News (RNK)

29 Feb 2008 07:01

Rank Group PLC29 February 2008 The Rank Group Plc Financial results for the 12 months ended 31 December 2007 Financial highlights • Revenue from continuing operations of £534.4m (2006: £549.6m)• Group operating profit before exceptional items from continuing operations of £68.3m (2006: £73.2m); £23.1m (2006: £126.9m) after exceptional items• Adjusted profit before tax* of £46.2m (2006: £40.2m); profit before tax and exceptional items from continuing operations of £52.3m (2006: £53.9m)• Adjusted earnings per share** of 7.4p (2006: 4.6p)• Basic earnings per share from continuing operations before exceptional items of 7.3p (2006: 8.4p)• Board decision not to pay a final dividend - dividend per share for 2007 of 2.0p (2006: 6.0p)• Net debt of £316.9m (£447.2m at 31 December 2006) Review of key events • $965m (£502m) Hard Rock disposal completed in March 2007• £353m returned to shareholders in April 2007 by way of a 65.0p per share special dividend• Group's progress impacted by negative effects on UK retail businesses of smoking ban, changes to gaming regulations, increases in taxation and deterioration in consumer confidence• Significant cost reduction in 2007; further £15m of cost savings identified for 2008• Agreement to transfer assets and liabilities of Group's defined benefit pension plan• Capital spending programme for 2008 reviewed in light of difficult trading conditions Ian Burke, chief executive of Rank Group said: "After making a strong start toour first year as a focused gaming business, we experienced a significantdeterioration in trading conditions in the second half for our UK retailbusinesses, Mecca Bingo and Grosvenor Casinos. "The combination of regulatory changes, structural increases in gaming duty andthe ban on smoking in enclosed public places had a negative effect on the Groupat a time of weakening consumer confidence. We have responded with vigour tothese challenges, adapting our businesses to protect revenue, addressing ourcost base to preserve margin and reviewing our capital spending plans.Nevertheless we expect 2008 to be a challenging year for Rank. "Our priority is to overcome the near term issues facing our businesses whileretaining a long term focus on the opportunities to create value through thegrowth in mainstream gaming based leisure." * adjusted profit before tax is calculated by adjusting profit before tax fromcontinuing operations to exclude exceptional items, unwinding of discount indisposal provisions, other financial gains/(losses), amortisation of the equitycomponent of the convertible bond and net return on defined benefit pensionasset.** a reconciliation of adjusted earnings per share is included in note 6. Enquiries The Rank Group PlcDan Waugh, director of investor relations Tel: 01628 504053 Financial DynamicsAndrew Dowler Tel: 020 7831 3113Marc Cohen Tel: 020 7269 7216 Photographs available from www.newscast.co.uk and www.rank.com Analyst meeting, webcast and conference call details: Friday, 29 February 2008 There will be an analyst meeting at Goldman Sachs, River Court, 120 FleetStreet, London, EC4A 2BB, starting at 9.30am. There will be a simultaneouswebcast 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: Friday, 29 February 20089.20am International: +44 (0)20 8609 0205 UK toll free: 0800 358 2705 USA toll free: 1866 793 4279 Conference ID: 942550# 9.30am Meeting starts A replay will be made available for seven days on International: +44 (0)20 86090289/ UK: 0800 358 2189 (passcode 205256#) 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 products and services) are forward-looking statements that are based on current expectations. 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 materially different from future results, performance, achievements or financial position expressed or implied by such forward-looking statements. Such forward-looking statements are based on numerous assumptions regarding the Company's operating performance, present and future business strategies, and the environment in which the Company will operate in the future. These forward-looking statements speak only as at the date of this announcement. Subject to the Listing Rules of the UK Listing Authority, the Company expressly disclaims any obligation or undertaking, to disseminate any updates or revisions to any forward-looking statements, contained herein to reflect any change in the Company's expectations, with regard thereto or any change in events, conditions or circumstances on which any such statement is based. Past performance cannot be relied upon as a guide to future performance. SUMMARY OF RESULTS - CONTINUING OPERATIONS The Group delivered growth in operating profit for the first six months of theyear but the second half proved more difficult as our bingo clubs and casinosabsorbed the negative effects of new legislation, higher taxation and adeteriorating economic environment for consumers. Revenue Operating profit* £m £m 2007 2006 2007 2006 (restated)Mecca Bingo 240.5 261.7 43.6 63.6Top Rank Espana 32.3 31.1 9.3 8.9Grosvenor Casinos 209.5 217.6 29.9 36.3Blue Square 52.1 39.2 10.9 7.8Shared services (18.5) (26.0)Central costs (6.9) (17.4)Continuing operations 534.4 549.6 68.3 73.2 * before exceptional items The Group has restated its financial results for 2006 to reflect changes inaccounting policy relating to exceptional items and the net return on theGroup's defined benefit pension plan. A restatement of Group full year profitsfor 2006 is contained in note 10 to the Group financial information. In addition a number of key performance indicators have been restated on a likefor like rather than absolute basis. This reflects more accurately theunderlying performances of the Group's businesses. Revenue from continuing operations of £534.4m was 2.8% lower than in 2006 whileGroup operating profit of £68.3m was down 6.7%. Like for like revenue (whichexcludes new openings, closures and relocations of bingo clubs and casinos) was0.5% ahead of our performance in 2006. The decline in operating profit was due in part to £6.9m of additional leasecosts (relating to the 2006 sale and leaseback transaction) and £4.6m ofincremental casino gaming duty (arising from taxation changes announced in theBudget 2007). We achieved a net cost reduction of £18.0m in Group central costsand shared services, although this related in part to £8.9m of one-off costsincurred in 2006. Excluding the effects of these one-off costs, the dutyincreases and higher lease costs, Group operating profit was 2.8% lower than in2006. Blue Square delivered the strongest performance in the Group, achievingsignificant growth in revenue and operating profit, while revenue and operatingprofit in Top Rank Espana recovered in part from the effects of the partialsmoking ban introduced in 2006. Our two largest businesses, Mecca Bingo and Grosvenor Casinos both generatedlower revenue and operating profit than in 2006. The lower profit performancewas due in part to higher lease costs and (in the case of Grosvenor Casinos) theincreased rates of casino gaming duty introduced in April 2007. During the finalfour months of the year, revenue in both businesses fell, as the negativeeffects of the smoking ban and the loss of Section 21 gaming terminals (requiredby the Gambling Act 2005) were compounded by a deterioration in consumerconfidence. In 2007 the Group has incurred £45.2m of exceptional operating losses chieflyrelated to the impairment of assets and the creation of onerous lease provisionsin Mecca Bingo and Grosvenor Casinos. Further details are provided below. STRATEGIC PRIORITIES We remain committed to our vision of creating the UK's leading gaming group,with a long term strategy to generate shareholder value through the developmentof gaming-based leisure businesses. We continue to develop a range ofdifferentiated betting and gaming products, geared to different segments of theadult population and distributed through a variety of retail and interactivechannels. Our focus is on increasing the number of visits to our businesses by rewardingour most loyal customers, reaching out to engage with new customers anddelivering a consistently high level of service and product to all of ourcustomers. Our immediate aim in 2008 is to stabilise the Group performance in what isexpected to be a difficult year for the leisure sector, balancing near-termfinancial requirements with the long term growth opportunities for ourbusinesses. Consequently, we have reviewed our capital spending plans andrefined a number of the expansion and portfolio enhancement targets that we setat the time of our interim results in August 2007. STABILISE GROUP PERFORMANCE Adapt businesses to protect revenue During 2007 we introduced a number of innovations, designed specifically toaddress the challenge of the smoking ban. Our principal aim was to adapt ourbingo clubs and casinos to preserve enjoyment for smoking as well as non-smokingcustomers. In the year, we completed the first phase of this programme, erecting shelteredareas at the majority of our Mecca Bingo clubs and Grosvenor Casinos. Weintroduced a total of 720 interval bingo playing positions into the shelters at30 of our Mecca Bingo clubs, having obtained the necessary local licensing andplanning approvals. These shelters proved popular with customers, generatingincremental revenue for the clubs and supporting club prizeboards. The second phase of this programme to expand and improve the shelteredenclosures at selected clubs is currently underway. In Mecca Bingo we are nowoperating interval bingo in 39 of our outside enclosures and we have obtainedgaming licensing approval to extend this to a further two clubs. We plan to havedeveloped outside gaming at 50 of our clubs by the end of the current year. Tighten cost controls to deliver savings We have targeted a further £15m of cost reductions across the Group during 2008.This is based upon a series of margin protection measures identified during thefinal quarter of 2007, which included: reduction of marketing and promotionalexpenditure in Mecca Bingo and Grosvenor Casinos; a deferral of annual payreviews; greater purchasing and operating efficiencies; and a small number ofredundancies. This package of cost savings is in addition to the significant cost savingsdelivered in 2007. Selective capital investment Given the changes affecting our businesses and the current economic volatility,we have decided to prioritise capital spending and to defer a number of majorcapital projects. Among these projects are plans to refurbish a number of ourGrosvenor Casinos and rebrand them under the G Casino name. We will keep allexpenditure under review and plan to commence development projects as thetrading environment improves. The development of the G Casinos in Aberdeen and Dundee are not affected by ourrevision of capital expenditure and are scheduled to open in 2008 and 2009respectively. Our new G Casino at Thanet in Kent opened in February 2008. SUSTAINABLE GROWTH IN CUSTOMER VISITS Improve product offer and customer service Our portfolio of businesses allows us to target different segments of the UKadult population with a range of gaming and non-gaming products, includingbingo, casino games, gaming machines, poker, sports betting and food and drink.Our ability to innovate (subject to any regulatory restrictions) is an importantpart of our strategy to attract and retain customers. Gaming products During 2007 we extended the roll-out of electronic bingo to 99 of our MeccaBingo clubs, principally through the use of hand-held terminals. This involvedthe testing and trial of five different models of hand-held units, sourced fromsuppliers in the UK and in North America. By the end of the year we had morethan 5,000 hand-held and desktop units across these clubs. In addition wecurrently have 178 electronic bingo positions across our 11 Top Rank Espanabingo clubs in Spain. The most immediate benefit of electronic bingo is that it allows customers toplay a higher number of bingo tickets per game. During 2008, we will continue todevelop electronic bingo and are at present testing an enhanced product thatallows for richer games content and greater interactivity. In late 2006 we introduced video bingo into two of our Top Rank Espana clubs.Following the success of this trial we adapted the product and launched it inthe UK at five of our Mecca Bingo clubs in January 2008. Video bingo terminalsallow customers across our clubs portfolio to play individual automated games ofbingo against each other. Following a review of our gaming machines estate, we are making a range ofimprovements both in Mecca Bingo and in Grosvenor Casinos. During the secondhalf of 2007 we initiated a trial of server based gaming machines in three ofour Mecca Bingo clubs and in 2008 we will replace a significant number ofmachines, to deliver a more efficient mix of products. Under the Gambling Act 2005 (the "Gambling Act") it has become simpler to testnew casino games and we have introduced a number of new games and side-bets intoour casinos. We will continue to explore opportunities to adopt successfulcasino games from other gaming jurisdictions. In Blue Square we are extending our sports betting coverage to incorporate arange of international sports, as part of the overseas development of thebusiness. Non-gaming products We recognise that our food and beverage offers in Mecca Bingo and GrosvenorCasinos have not kept pace with developments in the eating-out market and thatwe need to improve our menus, our service skills and our systems. In 2007 we tested a number of new catering concepts in Mecca Bingo, with a focuson quality, value and convenience and we are appointing dedicated food andbeverage managers in a number of our larger casinos and bingo clubs. To supportthis we will complete the installation of a new electronic point of sale systemin Grosvenor Casinos during the first half of 2008. A similar project for MeccaBingo will be underway shortly. Reward loyal customers and engage with new customers Reward loyal customers In 2008 we will launch a new customer rewards programme for customers ofGrosvenor and G Casinos, deploying the world-leading Bally system in a number ofour casinos on a trial basis. This will enable us to provide additional benefitsto our most loyal customers and will help us to gain a greater understanding ofcustomer preferences and playing patterns. We are currently exploring loyalty programmes for Mecca Bingo and for BlueSquare's interactive gaming and betting products and aim to introduce schemesfor each business in the current year. Engage with new customers Across the Group we have stepped up our efforts to grow our customer basethrough a targeted approach to new member marketing. In Mecca Bingo and Grosvenor Casinos we are using offer-based direct marketing,member referral schemes and new member sales managers to attract new and lapsedcustomers. During the final quarter of 2007 Grosvenor Casinos launched its first press andradio consumer advertising campaign (as a result of the Gambling Act'srelaxation of advertising restrictions for gaming companies), providing localsales and marketing support for 18 of our casinos. While we do not anticipatematerial expenditure on casino advertising in 2008, the potential to creategreater consumer awareness and understanding of our casinos is expected to besignificant in the long term. During 2007, Blue Square stepped up its marketing programme with a series ofsponsorships, designed to raise awareness of the brand in its key markets. Theflagship events were: • Horse racing - Blue Square Nassau Stakes/Stewards Cup (televised on BBC1)• Greyhound racing - Blue Square Greyhound Derby (televised on SKY Sports)• Non-league football - Blue Square Premier, Blue Square North & Blue Square South (televised on Setanta Sports)• Darts - Blue Square UK Darts Open (televised on SKY Sports)• Poker - Blue Square Grosvenor UK Poker Tour (televised on Channel 4) These five sponsorships achieved widespread coverage for Blue Square onterrestrial and digital television in 2007 (which included only half a season ofthe Blue Square Premier). Extend reach through development of retail and interactive distribution channels Mecca Bingo Although the sector is experiencing a period of volatility, bingo remains ahighly popular leisure pursuit in the UK. In the long term we aim to grow thenumber of bingo players, through club and interactive development. In recentyears however we have had to shrink our club portfolio in the face of hightaxation, changes in customer preferences, adverse changes to gaming regulationsand the effects of the smoking ban. During 2007 we closed 11 bingo clubs (ten in the first half; one in the secondhalf), which we considered particularly vulnerable in the light of the smokingban. Typically these clubs, of which eight were owned on a freehold basis,presented limited scope for modernisation or adaptation and a small numberoffered greater value under alternative use. At 31 December 2007, we had completed the disposal of six of the freeholdproperties for an aggregate consideration of £23.1m (reporting a £17.2m profiton disposal net of associated closure costs). At present we have no plans forfurther club closures, although we will continue to keep our portfolio underreview. In February 2008 we opened a new Mecca Bingo club at Thanet in Kent, taking ourtotal number of clubs to 103. Although we have identified a number of additionallocations where we intend to open new clubs, we have decided to suspend furthernew club development until we have greater visibility over trading conditions. In addition, we have examined opportunities to maximise the returns on ourassets through the development of adult gaming centres within those propertieswhere we have excess space. We opened our first adult gaming centre in Ashfordin January 2008. Top Rank Espana We continue to monitor the development of the gambling market in Spain to assessopportunities for our Spanish bingo clubs business. Grosvenor Casinos Our strategy to grow our active customer base is supported by a programme ofcasino development. In 2007, our G Casino concept (launched in Manchester in2006) was extended to Luton (licence relocation), Blackpool and London'sLeicester Square (re-branding the Grosvenor and Hard Rock Casinos respectively). G Casinos are aimed at the mainstream leisure market and typically occupy largesites in high profile and easily accessible locations. As well as featuringspacious and modern gaming areas, a significant proportion of the G Casino isset aside for soft gaming (pari-mutuel games such as poker) or non-gamingactivities through the provision of live entertainment, sports and medialounges, bars and restaurants. With the opening of G Casinos in Thanet and Aberdeen during 2008, the brand willhave been extended to six locations by the end of the year. In December 2007 we closed our loss-making Grosvenor Casino in Liverpool,although in time we expect to relocate the licence to an improved site in thecity. At present we operate 32 casinos in Great Britain and we hold licences tooperate casinos in a further 13 locations. This includes the two new licencesthat were granted under the 1968 Gaming Act (the "1968 Act") to GrosvenorCasinos in 2007, at Southend-on-Sea and at Edinburgh. Our non-operating 1968 Actcasino licences present significant scope for the business to widen itsdistribution. We expect to have opened five new casinos (including G Casino Aberdeen) by 2012.In addition we will seek to relocate a number of licences and invest selectivelyin the modernisation and extension of existing casinos. The slightly slower paceof development than indicated previously reflects this year's revised capitalspending plans and is representative of a more general slowing in new supplyacross the market. Since April 2006, there has been a moratorium in effect on the submission ofapplications for new casino licences under the 1968 Act. Although a number ofapplications submitted prior to April 2006 are still to be determined, thesuccess rate is low (nine out of 30 applications were granted in 2007, only fourof which were in markets where Grosvenor operates) and we have started to see anumber of casino closures. As a consequence, we anticipate that by 2012 therewill be fewer than 160 casinos operating in Great Britain under the 1968 Act. The Government has announced its intention to proceed with the development of 16'new generation' casinos, provided for within the Gambling Act. We remaininterested in a small number of the licences and believe that our track recordof responsible and innovative operation of casinos in Britain is a strong asset.However, at present it is not clear whether the Order to approve the locationsof these licences will be approved by Parliament, how the bidding process willwork and precisely what operating conditions will apply to the new casinos. Blue Square During 2007, Blue Square continued to extend its customer reach throughagreements with Virgin Media (to offer Blue Square sports betting and bingo toVirgin's broadband internet customers) and Probability Games (to provide mobilephone versions of popular casino games). During the first half of 2008 we will launch bingouniversal.com, an online bingoand gaming website for the Spanish market and we will begin offeringmulti-lingual, multi-currency sports betting services to customers of 888.com,under a 'white label' agreement. GAMBLING TAXATION During 2007 we stepped up our campaign for a level playing field across thegambling industry through the application of fair and consistent tax andregulatory policies. The focus of our efforts was the pursuit of a change in taxation for bingo whichunlike any other form of gambling in the UK is subject to both 17.5% value addedtax (VAT) and 15% gross profits tax (GPT). It is disappointing that, in spite ofrepeated questions from Members of Parliament and the Bingo Association, theGovernment has yet to provide a satisfactory explanation for its continueddiscrimination against bingo. The Government's decision to increase casino gaming duty in the Budget 2007 costGrosvenor Casinos an additional £4.6m in gaming duty. The change, which wasintroduced without prior notification or consultation with the casinos industry,resulted in a 22.6% increase in casino gaming duty, although some of our smallercasinos experienced duty rises of as much as 500%. HM Treasury has stated that it is reviewing the taxation treatment ofplayer-to-player poker played in casinos. The effect of applying GPT to pokerfees (in addition to VAT) would not be material in terms of Group profits butwould nevertheless discourage investment in poker rooms, which represent asofter gaming aspect to casino operations. We would consider such a move to becontradictory to the stated aims of the Government's gambling policy. PENSION PLAN On 28 February 2008 we announced that we had entered into a series of agreementswith the Trustee of the Rank Pension Plan and Rothesay Life (a wholly ownedsubsidiary of Goldman Sachs), to transfer the assets and liabilities of thepension plan to Rothesay Life. The transfer will secure the accrued benefits for the members of the pensionplan and will remove the remaining financial risks and liabilities in relationto the pension plan from Rank. As a result of the transfer, Rank will no longerbe required to make remaining scheduled contributions totalling £30.8m, whichthe Group agreed with the pension trustee at the time of the sale of Deluxe Filmin 2006. Upon completion of the transfer Rank expects to receive a cash payment of atleast £20m, representing the Group's allocation of the expected surplus withinthe pension plan after an appropriate sharing with the plan's members and anyanticipated costs, including tax, associated with the transfer. The transfer is subject to clearance from HM Revenue & Customs regarding the taxtreatment of the transfer. Rank expects this clearance to be obtained by May2008 with completion of the transfer expected in June 2008. HARD ROCK AND PAYMENT OF SPECIAL DIVIDEND On 5 March 2007, we completed the $965m (£502m) disposal of Hard Rock toSeminole Hard Rock Entertainment Inc, a wholly-owned subsidiary of the SeminoleTribe of Florida. As a consequence we were able to return £353m to shareholdersvia a 65.0p per share special dividend, which was paid on 9 April 2007. Thespecial dividend payment was accompanied by an 18 for 25 share consolidation. DIVIDEND On 12 October 2007, the Group paid to shareholders an interim dividend of 2.0pper share. However, as a result of the difficult and uncertain tradingenvironment, the Board announced on 12 December 2007 that it had decided not topay a final dividend for the year. The Board intends to resume dividend paymentsonce trading conditions and the market outlook have improved. CURRENT TRADING & OUTLOOK We announced at the time of our last market update in December 2007 that tradinghad stabilised in Mecca Bingo and Grosvenor Casinos in the nine-week periodsince 7 October. During the first eight weeks of 2008 this position has beenbroadly maintained in Grosvenor Casinos with a modest improvement in MeccaBingo. Year-on-year revenue growth for the 8 weeks to 24 February 2008 Like for like revenue % Total revenue % (excludes new club openings, closures and relocations)Mecca Bingo (13.5) (16.8)Top Rank Espana (2.7) (2.7)Grosvenor Casinos (13.4) (12.2)Blue Square 14.9 14.9Group (10.3) (11.0) During the period, Group revenue declined by 10.3% on a like for like basisagainst the first eight weeks in 2007. In Mecca Bingo, like for like revenue was 13.5% lower than in the first eightweeks in 2007, with admissions down by 13.6% and spend per head up 0.1%. Thiscompares with the 17.3% fall in revenue experienced during the 17 weeks from thestart of September 2007 (when the Gambling Act was implemented) to the end ofthe year. In Grosvenor Casinos like for like revenue was 13.4% lower than in the firsteight weeks in 2007, with admissions down 13.4% and spend per head level. Thisperformance reflects a good comparative trading period in 2007, the effects ofcompetitor openings on a small number of our casinos and a reduction inpromotional expenditure at the start of 2008. In absolute revenue terms we havecontinued to trade in line with the final 17 weeks in 2007. In Blue Square revenue grew by 14.9%, with a strong improvement in gaming butcontinued weakness from our sportsbook. The Board believes that 2008 will be a challenging year for Rank's businesses asthey continue to respond to changes in the legislative and economic environment.The priority for the Group is to stabilise performance while retaining a focuson the longer-term opportunities for growth in the gaming sector. BINGO Mecca Bingo Our UK bingo clubs business, Mecca Bingo, experienced a mixed year. Anencouraging first half was overshadowed by a difficult second half, as thebusiness started to feel the effects of the smoking ban, the loss of Section 21gaming terminals and a deterioration in consumer confidence. These difficultieswere common across the broader bingo club sector and, despite the closure of 11clubs in the year, Mecca Bingo's share of the market increased marginally from28.7% to 28.8%. Revenue Operating profit* 2007 2006 2007 2006 (restated) £m £m £m £mMecca Bingo 240.5 261.7 43.6 63.6Top Rank Espana 32.3 31.1 9.3 8.9Total bingo 272.8 292.8 52.9 72.5 * before exceptional items During 2007, revenue from Mecca Bingo declined by 8.1% against the previous yearto £240.5m, partly as a result of the closure of 11 clubs. Operating profit wasdown 31.4% to £43.6m, although this was due in part to £4.9m of additional leasecosts, resulting from the 2006 sale and leaseback transaction. Like for like clubs Admissions Spend per head 2007 2006 2007 2006 (excludes new club openings, 000s 000s £ £ closures and relocations)Mecca Bingo 16,809 17,964 13.76 13.45 On a like for like basis, revenue in Mecca Bingo declined by 4.3% withadmissions down 6.4% and spend per head up 2.3%. Active membership of more than999,000 was 8.2% lower than in 2006. During the first six months of the year, Mecca Bingo grew like for like revenueby 1.6% and delivered underlying growth in operating profit (excluding thehigher lease costs). In the second-half, like for like revenue declined by12.0%, while operating profit was down 62.2%. The Group had expected that the smoking ban and the loss of Section 21 gamingterminals (as required by the Gambling Act from 1 September 2007) would havenegative effects on revenue and operating profit in the second half of the year.However, the combination of these events with a discernible weakening inconsumer confidence, caused trading during the final four months of the year toprove more difficult than we had anticipated. During the 17 week period between the start of September 2007 and the end of theyear, like for like revenue declined by 17.3%, with admissions down by 15.0% andspend per head down by 2.8%. In England and Wales like for like revenue declinedby 19.9%, whereas in Scotland (where the smoking ban was introduced in March2006) revenue fell by 1.9%. In preparation for the difficult trading conditions in the second-half of theyear, we conducted a major review of our portfolio, which resulted in theclosure of 11 clubs (ten in the first half and one in the second half). InFebruary 2008, we opened our first new bingo club for 17 months, at Thanet inKent. We will continue to keep our portfolio under review but, in the light ofcurrent trading volatility, we do not consider it prudent to commit to anyfurther club openings or closures. 2007 2006 Change % £m £mMainstage bingo 43.2 43.2 -Interval games 106.4 120.4 (11.6)Gaming machines 67.1 72.8 (7.8)Food & drink/other 23.8 25.3 (5.9)Total 240.5 261.7 (8.1) Mainstage bingo - Despite the closure of 11 clubs and the decline in admissions,we held year-on-year revenue from mainstage bingo steady at £43.2m, with aslight increase during the second half. This was largely as a consequence of ourdeployment of electronic bingo terminals, which allowed customers to play ahigher number of bingo tickets per game. Spend per head on mainstage bingoincreased by 12.5% against 2006. Interval games - Revenue from 'Cashline' interval games declined by 11.6% to£106.4m as a result of club closures, lower admissions and the disruptive effectof the smoking ban. Spend per head on Cashline was down by 0.8% against 2006.The development of Cashline positions in outside smoking enclosures will help toprotect interval game revenue in 2008. Gaming machines - Revenue from gaming machines of £67.1m was down 7.8% against2006, with club closures, lower admissions, the smoking ban and the loss ofSection 21 gaming terminals causing a decline during the second half of theyear. The requirement to remove or adapt nearly 1,000 Section 21 terminals by 1September 2007 (upon the introduction of the Gambling Act) caused significantdisruption to the business. We will be focusing greater efforts to improve ourgaming machine product offer in 2008, through the development of larger and morecomfortable arcades and a more targeted approach to machine deployment. Food and drink/other - Revenue from food and drink and other items of £23.8m was5.9% lower than in 2006, although this was affected by club closures and loweradmissions. Spend per head increased by 5.8%. Top Rank Espana Admissions Spend per head 2007 2006 2007 2006 000s 000s £ £Top Rank Espana 2,458 2,469 13.13 12.61 Following a difficult 2006 (when a partial smoking ban was introduced in Spain),our Spanish bingo clubs business, Top Rank Espana, enjoyed a limited recovery in2007.Revenue increased by 3.9% to £32.3m, while operating profit grew by 4.5% to£9.3m. Admissions, which continue to be affected by the smoking ban, declined by 0.4%but spend per head rose by 4.1%, principally as a result of improvements to ourgaming machines and electronic gaming products. Active membership of Top RankEspana's clubs remained steady at approximately 330,000. CASINOS Grosvenor Casinos Following a strong first half of the year, Grosvenor Casinos experienceddifficult trading conditions during the second half as the smoking ban and aslowdown in consumer spending affected revenue generation. Operating profit waslower than in 2006, largely as a result of higher lease costs and a substantialand unbudgeted increase in casino gaming duty, arising from the Government'sBudget 2007. Revenue Operating profit* 2007 2006 2007 2006 £m £m £m (restated) £mLondon 88.0 94.1 14.7 14.7Provincial 108.4 110.3 14.3 20.2Belgium 13.1 13.2 0.9 1.4Total casinos 209.5 217.6 29.9 36.3 * before exceptional items Revenue from Grosvenor Casinos of £209.5m was 3.7% lower than in 2006, althoughthis was due almost entirely to the sale of the Clermont Club in December 2006and the closures of our Manchester Hard Rock Casino and Scarborough GrosvenorCasino in July 2006. For the same reasons, our share of the British casinomarket (measured as share of overall admissions) fell from 30.4% to 27.7%. Like for like revenue declined by 0.6%, with admissions down 1.2% and spend perhead up 0.6%. Operating profit of £29.9m was 17.6% lower than in 2006. Stripping out theeffects of the £4.6m increase in gaming duty and the £2.0m of additional leasecosts (resulting from the 2006 sale and leaseback transaction), operating profitgrew by 0.6%. Active membership of our casinos increased by 3.7% to more than803,000, demonstrating the broadening appeal of casino gaming in Great Britain. Trading in the second half of the year proved more challenging than in thefirst, as our casinos started to feel the effects of the smoking ban, the lossof Section 21 gaming terminals and the slowdown in consumer spending. Newcompetitor casinos in London, Manchester, Bristol and Swansea also had someeffect on the performances of our casinos operating in those markets. Like for like clubs Admissions Spend per head(excludes new club openings, closures and 2007 2006 2007 2006 relocations) 000s 000s £ £London 968 997 90.92 86.21Provinces 3,077 3,121 30.59 31.21UK casinos 4,045 4,118 45.03 44.52Belgium 182 162 72.12 81.27Total casinos 4,227 4,280 46.19 45.91 London - In 2007 our London casinos experienced a 6.5% year-on-year decline inrevenue. On a like for like basis (excluding the Clermont Club, which was soldin December 2006) revenue grew by 2.4% with a 5.5% rise in spend per headoff-setting a 2.9% decline in admissions. Trading conditions in the second halfof the year were more difficult than in the first as the competitive impact ofthe new 'Casino at the Empire' on Leicester Square (owned by US gaming company,Harrah's) compounded the effects of the smoking ban. During the year, we carriedout major refurbishments at our Victoria Casino and at our G Casino on LeicesterSquare (formerly known as the Hard Rock Casino). Provinces - In 2007 our provincial casinos experienced a 1.7% year-on-yeardecline in revenue. On a like for like basis (excluding two licence relocations,two casinos closed in 2006 and one casino closed in 2007) revenue was down by3.4% with spend per head 2.0% lower and admissions down 1.4%. In December 2007,we closed our loss-making Liverpool Grosvenor Casino. Belgium - Our two Belgian casinos, in the seaside towns of Middlekerke andBlankenberge, generated revenue of £13.1m, slightly behind the prior year.Admissions increased by 12.3% to more than 182,000 but spend per head was 11.3%lower than in 2006. Blue Square 2007 2006 £m £mGaming 36.9 23.0Sportsbook 15.2 16.2Total revenue 52.1 39.2Operating profit 10.9 7.8 Our interactive gaming business, Blue Square, grew revenue by 32.9% to £52.1m in2007, with operating profit up 39.7% to £10.9m. Active membership increased by12.6% to more than 321,000. Growth was driven entirely by our gaming products, which increased revenue by60.4% to £36.9m. We enjoyed strong performances in bingo and games (principallythrough meccabingo.com) but our poker product lost ground on its performance in2006 as a result of the requirement to move from the Tribeca to the Playtechoperating platforms. Our sports betting business had a difficult year, with revenue slipping 6.2% to£15.2m. During 2007, we made progress in growing our business outside the UK. InNovember we agreed a 'white label' deal with 888 Holdings to supply the BlueSquare sports betting service to customers of 888's gaming websites. We expectthis to commence in the first quarter of 2008. During the course of the year, we invested in the development ofbingouniversal.com, our online bingo and gaming business for the Spanish market,which is scheduled for launch in the first half of this year. The Blue Square Grosvenor UK Poker Tour, which started in 2007, was the biggestseries of poker tournaments ever seen in the UK. The tour comprised a series of11 tournaments, hosted by Grosvenor and G Casinos across the country with totalplayer registrations exceeding 3,000. These players competed for prize money ofmore than £3.2m. Between September and December 2007, Channel 4 Televisionscreened the tournaments in a series of 22 hour-long weekly programmes,attracting average weekly audiences of 205,000. Viewing figures for the grandfinal alone of 320,000 represents the biggest audience for a poker competitionever held in the UK. In August 2007, Blue Square launched its sponsorship of the non-league FootballConference (re-christened the Blue Square Premier, Blue Square North and BlueSquare South) and of its coverage on Setanta Sports Television. During theperiod between August and December 2007, viewing figures for Blue Square Premiermatches reached 118,000. The progress of a number of Blue Square non-leaguefootball clubs in the FA Cup has resulted in significant exposure for the brandon BBC1 and SKY Sports in the current year. SUMMARY OF RESULTS (from continuing operations) Revenue Operating profit Before After exceptionals exceptionals 2007 2006 2007 2006 2007 2006 (restated) (restated) £m £m £m £m £m £m Mecca Bingo 240.5 261.7 43.6 63.6 16.0 98.8Top Rank Espana 32.3 31.1 9.3 8.9 9.3 8.9Grosvenor Casinos 209.5 217.6 29.9 36.3 19.2 73.6Blue Square 52.1 39.2 10.9 7.8 10.9 7.8Gaming Shared Services - - (18.5) (26.0) (18.5) (32.7)Central costs and other - - (6.9) (17.4) (13.8) (29.5) Continuing operations 534.4 549.6 68.3 73.2 23.1 126.9 Interest (net) (22.1) (33.0) (22.1) (47.7) Adjusted profit before taxation 46.2 40.2 1.0 79.2Amortisation of equity component of convertible bond (3.6) (3.0) (3.6) (3.0) Unwinding of discount in disposal provisions (1.3) - (1.3) - Net return on defined benefit pension asset 10.5 6.7 10.5 6.7 Other financial gains (losses) 0.5 10.0 0.5 10.0 Profit before taxation 52.3 53.9 7.1 92.9 Basic earnings (loss) per share - continuing operations 7.3p 8.4p (1.2)p 19.5pAdjusted earnings per share (note 6) 7.4p 4.6p The Group has restated its financial results for 2006 to reflect changes inaccounting policies relating to exceptional items and the net return on thedefined benefit pension asset. Further details are provided in note 10. Group revenue from continuing operations fell by £15.2m, driven by thereductions in Mecca Bingo and Grosvenor Casinos partially offset by the increaseat our online business Blue Square. As noted earlier, revenue was impacted bythe closure of a number of bingo clubs and casinos in both 2007 and 2006 as wellas the effects of the smoking bans in the UK and Spain and the removal ofSection 21 gaming machines. Group operating profit before exceptional items was £4.9m lower than in 2006.Profits from our operating businesses were impacted by £4.6m in additionalcasino duty and £6.9m in additional lease costs arising from the 2006 sale andleaseback transaction. We reduced shared service costs and central costs by anaggregate £18.0m (although the 2006 figures included £8.9m of non-recurringcosts). The net interest charge was £10.9m lower than in 2006, which reflects loweraverage net debt following the sale and leaseback in 2006 and the proceeds fromthe disposal of Hard Rock in March 2007 (net of the accompanying payment of aspecial dividend in April 2007). Adjusted Group profit before tax and exceptionals was £6.0m higher than lastyear. The effective tax rate on adjusted profits is 30.9% (2006: 33.3%). The taxcharge is in line with the continuing Group's anticipated effective tax rate of30% to 35%. Adjusted earnings per share of 7.4p (2006: 4.6p) reflects the higher adjustedpre-tax profit, the lower effective tax rate and the decrease in the averagenumber of shares in issue. The number of shares has reduced as a result of thereturns made to shareholders through the share buyback programme in 2006 and theshare consolidation that accompanied the special dividend in 2007. In 2007 the Group paid a final dividend in respect of 2006 of 4.0p per Ordinaryshare, an interim dividend of 2.0p per Ordinary share in respect of 2007 and aspecial dividend of 65.0p following the disposal of Hard Rock. The specialdividend was accompanied by an 18 for 25 share consolidation. Given the difficult trading conditions currently being experienced, the level ofuncertainty facing the gaming industry and the more general market concerns of aconsumer spending slowdown as we move into 2008, the Board announced in Decemberthat it would not pay a final dividend for 2007. The Board intends to resumedividend payments once trading conditions and the market outlook have improved.Our medium term dividend cover target remains 2.0 times earnings. Exceptional items In order to give a full understanding of the Group's financial performance andaid comparability between periods, the Group has changed its accounting policyon exceptional items as detailed in note 10 to the Group financial information. The Group has carried out an impairment review of each casino and bingo club inaccordance with IAS 36. This requires a comparison of the discounted future cashflows for each club to it's carrying value. The impact of the smoking ban,removal of Section 21 machines, increased casino competition and the unexpectedincrease in Casino Duty have all had a material negative impact on the Group. The review has resulted in impairments of £25.7m in Mecca Bingo and £8.2m inGrosvenor Casinos. In addition we have created further onerous lease provisionsof £19.1m in Mecca Bingo, where the future cashflows are expected to beinsufficient to cover the future lease obligations. Grosvenor Casinos closed itsloss-making Liverpool casino in December 2007, incurring a small write-off offixed assets and the creation of a £1.7m onerous lease provision. These leaseshave an unexpired life of between 10 and 57 years. The Group has a limited number of onerous leases at sites no longer used by theoperating businesses. The provision on these sites has been increased by £6.9mas a result of lower sub-let income and increased running costs. In the year Rank closed 11 Mecca Bingo clubs and sold six of the freehold sitesfor an aggregate consideration of £23.1m. The profit on disposal of the clubs,net of closure costs for the remaining clubs and Grosvenor Liverpool, totalled£16.4m. Details on the exceptional items relating to discontinued operations areincluded in note 2 to the Group financial information. Discontinued operations Discontinued operations in 2007 comprise the results of Hard Rock andadditionally in 2006, Deluxe Media, Deluxe Film and US Holidays. The Groupcompleted the sale of Hard Rock on 5 March 2007, resulting in an exceptionalprofit of £352.7m, before related financing and taxation costs of £37.3m. Theresults, revenues and costs are shown in a single line on a post-tax basis inthe income statement. Further details are provided in note 4 to the Groupfinancial information. Cash flow and net debt 2007 2006 £m £mContinuing operationsCash inflow from operations 101.8 107.3Capital expenditure (47.3) (50.2)Fixed asset disposals 29.4 10.1Operating cash inflow 83.9 67.2Acquisitions and disposals 495.8 629.9Payment in respect of provisions and exceptional costs (15.8) (37.0) 563.9 660.1Interest, tax and dividend payments (57.3) (136.2)Special dividend / share buy-back (352.5) (201.4)Additional contribution to pension fund (19.6) (50.0)Other (including foreign exchange translation) (2.5) 34.0Discontinued operations (1.7) (14.3)Decrease in net debt 130.3 292.2Opening net debt 447.2 739.4Closing net debt 316.9 447.2 At the end of December 2007, net debt was £316.9m compared with £447.2m at theend of December 2006. The net debt comprised bank debt of £150.0m, £163.9m inconvertible unsecured loan stock, £57.0m in fixed rate Yankee bonds, £14.6m infinance leases and £3.5m in overdrafts, partially offset by cash at bank and inhand of £72.1m. Financial structure and liquidity The Group's bank borrowings are available under a £250m revolver loan and a£150m term loan, both of which were put in place in April 2007 and which maturein 2012. These syndicated loans require the maintenance of minimum ratios ofearnings before interest, tax, depreciation and amortisation to both netinterest payable and net debt, which are tested bi-annually at June andDecember. In addition the Group has uncommitted borrowing facilities of £40m, which areavailable for general use. In January 2008 the Group repaid the US$100m 6.375% Yankee bonds out of existingfacilities. In January 2009 the £167.7m 3.875% convertible unsecured loan stock falls due.The Group currently plans to repay the bond by drawing on existing bankborrowings, without recourse to the capital markets. Capital expenditure 2007 2006 £m £mMecca Bingo 19.8 16.3Top Rank Espana 4.5 5.5Grosvenor Casinos 17.1 24.4Blue Square 4.5 2.8Others 1.4 1.2Total 47.3 50.2 Capital expenditure for Mecca Bingo included £2.7m on the development of ourlatest bingo club in Thanet (opened in February 2008) and £2.2m on various worksconnected with the introduction of the smoking ban, including the constructionof a number of external shelters. The balance of the expenditure was on clubrefurbishments and minor capital works. In Grosvenor Casinos we spent a total of £9.2m on G Casino relocations andre-branding, with £3.5m on the extension and re-branding of Blackpool as a GCasino, £1.1m on the relocation of the Luton casino (which opened in February2007) and £4.6m on the new G casino in Thanet (opened in February 2008), whichis a relocation of our Ramsgate licence. In addition we spent £2.1m on therefurbishment of the Victoria Casino in London, including an expanded pokerroom. The increased expenditure in Blue Square included expansionary capital for thenew deals with Virgin Media and 888 Holdings as well as the development of ournew Spanish bingo website. In light of the current trading conditions, the Group has decided to defer anumber of major capital projects. We now expect 2008 capital expenditure to bein the order of £20m although this will be kept under review. The new G Casinoin Aberdeen (opening 2008) is unaffected by this change. Pension fund During the course of the year we made payments totalling £19.6m to the plan inaccordance with an agreement with the Group pension plan trustee. This included£4.6m that, under Section 75 of the Pensions Act, was required following thesales of Hard Rock and Deluxe Media. The Group has decided to close the plan for future service accrual and,following consultation with our employees, contributions ceased in February 2008although employees benefits have been augmented to 30 June 2008. Employeesaffected have been offered a replacement stakeholder scheme or a salarysupplement. As detailed above we have agreed to transfer the assets and liabilities of theGroups defined benefit pension plan to Rothesay Life. Assuming the transactioncompletes, an exceptional charge will be recognised in 2008. Going concern In adopting the going concern basis for preparing the financial statements theDirectors have considered the issues impacting the Group during 2007 as detailedin the business review above and have reviewed the Group's projected compliancewith its banking covenants detailed above. Based on the Group's cash flowforecasts and operating budgets, which take into account management's actions oncapital expenditure, cost control and the suspension of the dividend andassuming that trading continues broadly in line with current levels, theDirectors believe that the Group will generate sufficient cash to meet itsborrowing requirements for at least the next 12 months and comply with itsbanking covenants. GROUP INCOME STATEMENT For the year ended 31 December 2007 2007 2006 (restated)* Before Exceptional Before Exceptional exceptional items exceptional items items (note 2) Total items (note 2) Total Note £m £m £m £m £m £mContinuing operationsRevenue 534.4 - 534.4 549.6 - 549.6Cost of sales (283.9) - (283.9) (282.5) - (282.5)Gross profit 250.5 - 250.5 267.1 - 267.1Other operating (costs) income (182.2) (45.2) (227.4) (193.9) 53.7 (140.2)Group operating profit (loss) 68.3 (45.2) 23.1 73.2 53.7 126.9Financing:- finance costs (27.4) - (27.4) (36.2) (14.7) (50.9)- finance income 5.3 - 5.3 3.2 - 3.2- amortisation of equity component of (3.6) - (3.6) (3.0) - (3.0)convertible bond- unwinding of discount in disposal (1.3) - (1.3) - - -provisions- net return on defined benefit 10.5 - 10.5 6.7 - 6.7pension asset- other financial gains (losses) 0.5 - 0.5 10.0 - 10.0Total net financing charge (16.0) - (16.0) (19.3) (14.7) (34.0)Profit (loss) before taxation 52.3 (45.2) 7.1 53.9 39.0 92.9Taxation 3 (20.7) 8.3 (12.4) (4.6) 26.2 21.6(Loss) profit for the year from 31.6 (36.9) (5.3) 49.3 65.2 114.5continuing operations Discontinued operations 4 1.4 315.4 316.8 21.5 (17.0) 4.5Profit for the year 33.0 278.5 311.5 70.8 48.2 119.0Profit attributable to equity 33.0 278.5 311.5 69.0 48.2 117.2shareholdersProfit attributable to - - - 1.8 - 1.8minority interest 33.0 278.5 311.5 70.8 48.2 119.0 Earnings per share attributable toequity shareholders- basic 6 7.7p 64.7p 72.4p 11.8p 8.1p 19.9p- diluted 6 7.7p 64.7p 72.4p 11.8p 8.1p 19.9pEarnings (loss) per share -continuing operations- basic 6 7.3p (8.5)p (1.2)p 8.4p 11.1p 19.5p- diluted 6 7.3p (8.5)p (1.2)p 8.4p 11.1p 19.5pEarnings (loss) per share -discontinued operations- basic 6 0.4p 73.2p 73.6p 3.4p (3.0)p 0.4p- diluted 6 0.4p 73.2p 73.6p 3.4p (3.0)p 0.4p Details of dividends paid and payable to equity shareholders are disclosed innote 5. * Details of the restatement to the 2006 comparatives are disclosed in note 10. GROUP BALANCE SHEET At 31 December 2007 2007 2006 (restated)* £m £mAssetsNon-current assetsIntangible assets 179.0 173.2Property, plant and equipment 179.2 203.8Investments 0.1 0.5Defined benefit pension asset 130.7 75.8Deferred tax assets 13.5 9.7Trade and other receivables 1.5 8.4 504.0 471.4Current assetsFinancial assets- derivative financial instruments 0.6 9.5- cash and cash equivalents 72.1 83.6Inventories 3.4 4.3Trade and other receivables 29.9 56.7 106.0 154.1Assets held for sale - 242.0 106.0 396.1Total assets 610.0 867.5LiabilitiesCurrent liabilitiesFinancial liabilities- derivative financial instruments (2.5) (2.6)- loan capital and borrowings (60.7) (10.8)Trade and other payables (103.8) (125.2)Current tax liabilities (5.4) (2.3)Provisions for other liabilities and charges (20.4) (12.7) (192.8) (153.6)Liabilities held for sale - (44.5) (192.8) (198.1)Net current (liabilities) assets (86.8) 198.0Non-current liabilitiesFinancial liabilities- derivative financial instruments - (1.6)- loan capital and borrowings (331.0) (510.5)Deferred tax liabilities (7.5) (7.7)Other non-current liabilities (32.0) (32.9)Provisions for other liabilities and charges (60.0) (41.4) (430.5) (594.1)Total liabilities (623.3) (792.2)Net (liabilities) assets (13.3) 75.3Capital and reserves attributable to the Company's equity shareholdersOrdinary shares 54.2 54.2Share premium 98.2 98.1Capital redemption reserve 33.4 33.4Exchange translation reserve (0.3) (4.5)Other reserves (198.8) (105.9)Total shareholders' (deficit) equity (13.3) 75.3Minority interests - -Total (deficit) equity (13.3) 75.3 * Details of the restatement to the 2006 comparatives are disclosed in note 10. GROUP CASH FLOW STATEMENT For the year ended 31 December 2007 2007 2006 £m £mCash flows from operating activitiesCash generated from operations 86.0 70.3Interest received 5.8 5.0Interest paid (35.6) (63.2)Tax paid (4.1) (3.9)Additional pension payments (19.6) (50.0)Discontinued operations (0.3) 7.5Net cash from (used in) operating activities 32.2 (34.3)Cash flows from investing activitiesProceeds from sale of businesses (net of cash disposed) 496.2 449.8Acquisition of businesses (0.4) (0.6)Purchase of intangible assets (4.2) (4.0)Purchase of property, plant and equipment (43.1) (46.2)Proceeds from sale of property, plant and equipment 23.3 10.1Proceeds from sale and leaseback net of lease assignment 6.1 171.9Proceeds from sale of investments - 8.8Discontinued operations (1.4) (21.8)Net cash from investing activities 476.5 568.0Cash flows from financing activitiesNet proceeds from issue of ordinary share capital 0.1 5.2Purchase of own shares (2.1) -Dividends paid to shareholders - ordinary (23.4) (74.1)Dividends paid to shareholders - special (352.5) -Share buy-back - (201.4)Debt due within one year- drawdown on syndicated facilities 150.0 -Debt due after more than one year- repayment of Sterling borrowings - (35.0)- repayment of Dollar borrowings - (219.1)- drawdown on syndicated facilities - 300.1- repayment of syndicated facilities (285.2) (326.3)- other (1.2) -Finance lease principal payments (2.1) (1.6)Amounts received from subsidiaries - -Discontinued operations (0.1) (13.8)Net cash used in financing activities (516.5) (566.0) Effects of exchange rate changes 1.0 (1.7) Net decrease in cash and cash equivalents (6.8) (34.0)Cash and cash equivalents at 1 January 75.4 109.4Cash and cash equivalents at 31 December 68.6 75.4 Details of cash flows relating to discontinued operations are providedin note 4. GROUP STATEMENT OF RECOGNISED INCOME AND EXPENSE For the year ended 31 December 2007 2007 2006 £m £mProfit for the year 311.5 119.0Currency translation net of tax and hedging (4.4) (28.3)Actuarial gain on defined benefit pension scheme net of tax 17.4 64.7Adjustment in respect of deferred tax on pensions from 30% to 28% 2.4 -Revaluation of available-for-sale securities (0.4) 22.8Revaluation of available-for-sale securities recycled within net profit (44.4) 12.1Cumulative foreign exchange losses recycled within net profit 8.6 -Total recognised income for the year 290.7 190.3 - attributable to equity shareholders 290.7 188.5- attributable to minority interest - 1.8 290.7 190.3 NOTES TO THE GROUP FINANCIAL INFORMATION 1. Basis of preparation and accounting policies The financial information attached has been extracted from the audited financialstatements for the year ended 31 December 2007, and has been prepared inaccordance with IFRS as adopted by the EU and IFRIC interpretations issued andeffective at the time of preparing those financial statements. The financial information for the years ended 31 December 2007 and 31 December2006 do not constitute the financial statements for those years. The annualreport and financial statements for the year ended 31 December 2007 wereapproved by the Board of Directors on 28 February 2008, together with thisannouncement, but not have yet been delivered to the Registrar of Companies.The auditor's report on the financial statements for both years was unqualifiedand did not contain a statement under either Section 237 (2) or 237 (3) of theCompanies Act 1985. The financial statements for 2006 have been delivered tothe Registrar. The principal accounting policies adopted under IFRS and applied in thepreparation of the financial statements are available on the Group's website,www.rank.com except for the changes to the accounting policies as set out below. In 2007 the Rank Group Plc changed its policies in accounting for exceptionalitems and the net return on its defined benefit pension asset. The Group hasadjusted comparative amounts disclosed for the prior period presented as if thenew accounting policies had always been applied (see note 10). (i) Exceptional items The Group now defines exceptional items as those items which, by their size or nature, are separately disclosed in order to give a full understanding of the Group's financial performance and aid comparability of the Group's result between periods. This would include, to the extent they are material, gains orlosses on the disposal of property, impairments of the carrying value of clubsand associated onerous lease provisions, costs of club closures, onerous leaseprovisions on vacant properties and disposal of businesses. Previously the Group defined exceptional items as those non-recurring itemswhich by their nature or size would distort the comparability of the Group'sresult from year to year. The impact of the policy change is to reclassifycertain costs from operating items to exceptional in relation to impairments andprofits on disposal of Mecca Bingo clubs in 2006. (ii) Net return on the defined benefit pension asset 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 withaccounting best practice, the Group has decided to reclassify the net returnarising on the defined benefit pension asset from operating profit to netfinancing costs. 2. Exceptional items 2007 2006 (restated) Note £m £mExceptional items relating to continuing operationsImpairment of clubs (33.9) (8.6)Provision for onerous leases (27.7) -Net profit on sale of property less associated closure costs 16.4 19.1Profit on sale and leaseback transaction - 55.3Loss on sale of investment - (12.1)Exceptional items before financing and taxation relating to continuing (45.2) 53.7operationsFinancing charge - (14.7)Taxation 3 8.3 26.2Exceptional items relating to continuing operations (36.9) 65.2Exceptional items relating to discontinued operationsHard Rock 352.7 -US Holidays - (20.0)Financing charge (9.9) -Taxation 3 (27.4) 3.0Exceptional items relating to discontinued operations 315.4 (17.0)Total exceptional items 278.5 48.2 Continuing operations Following the introduction of the smoking ban in England and Wales, the loss ofSection 21 machine income and the unexpected rise in Casino Duty, an impairmentcharge of £33.9m and associated onerous lease provisions of £20.8m have beenrecognised during the year. During the year the Group closed 11 Mecca Bingo clubs and one Grosvenor casino.The resulting profit on sale of certain properties, net of associated closureand disposal costs, was £16.4m. The Group has a limited number of onerous leases at sites no longer used by theoperating businesses. The provision on these sites has been increased by £6.9mas a result of lower sub-let income and increased running costs. Discontinued operations The Group completed the sale of Hard Rock on 5 March 2007 resulting in anexceptional profit of £352.7m before related financing and taxation costs of£37.3m. The exceptional financing charge relates to the costs associated withthe currency option taken to hedge the receipt of the US Dollar proceeds and thewrite off of prepaid facility fees. Due to favourable movements in the exchangerate the currency option hedge was not utilised. The profit arising includescumulative foreign exchange losses of £8.6m and fair value gains of £44.4m inrelation to available-for-sale securities. These gains and losses had previouslybeen recognised in equity. 3. Taxation 2007 2006 (restated) £m £mCurrent income tax on continuing operationsCurrent tax - UK (22.7) 0.3Current tax - overseas (5.2) (5.6)Current tax charge (27.9) (5.3)Current tax on exceptional items 8.3 9.7Amounts (under) over provided in previous year (6.0) 2.2Total current tax (25.6) 6.6Deferred tax on continuing operationsDeferred tax - UK 10.5 0.7Deferred tax - overseas 0.4 1.4Deferred tax on exceptional items - 16.5Restatement of deferred tax from 30% to 28% (3.4) -Amounts over (under) provided in previous year 5.7 (3.6)Total deferred tax 13.2 15.0 Tax (charge) credit in the income statement on continuing operations (12.4) 21.6 In 2007 current tax on exceptional items within continuing operations includes atax credit of £8.3m relating to the £27.7m onerous lease charge. 2007 2006 £m £mCurrent income tax on discontinued operationsCurrent tax - UK (0.6) 6.9Current tax - overseas - (2.9)Current tax (charge) credit (0.6) 4.0Current tax on exceptional items 4.9 -Amounts over (under) provided in previous year 0.3 (1.4)Total current tax 4.6 2.6Deferred tax on discontinued operationsDeferred tax - UK - (2.2)Deferred tax - overseas - (3.8)Deferred tax on exceptional items (32.3) 3.0Amounts under provided in previous year - (0.5)Total deferred tax (32.3) (3.5) Tax charge in the income statement on discontinued operations (27.7) (0.9) The announced reduction in the headline UK Corporation Tax rate from 30% to 28%has resulted in a one off increase in the current year tax charge of £3.4m asthe Group's UK deferred tax asset is restated based on the reduced rate. Anoffsetting £2.4m credit has been recognised directly in equity in accordancewith IAS 12. 4. Discontinued operations and disposal groups held for sale The Group completed the sale of Hard Rock on 5 March 2007 resulting in anexceptional profit of £352.7m before related financing and taxation costs of£37.3m. 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. 2007 2006 Deluxe Hard Hard US Media Deluxe Rock Rock Holidays Services Film Total £m £m £m £m £m £mRevenue 35.6 271.2 28.0 163.1 26.2 488.5Operating profit (loss) before 2.1 40.4 2.1 (13.9) 1.5 30.1exceptional itemsExceptional items (see note 2) 352.7 - (20.0) - - (20.0)Operating profit (loss) 354.8 40.4 (17.9) (13.9) 1.5 10.1Share of post-taxation (loss) income from joint (0.3) (1.3) - - 0.1 (1.2)ventures and associatesNet financing charge (including (10.0) (2.6) - (0.9) - (3.5)exceptional items)Profit (loss) before taxation 344.5 36.5 (17.9) (14.8) 1.6 5.4Taxation (including exceptional items) (27.7) 0.4 (3.7) 5.3 (2.9) (0.9)Net profit (loss) 316.8 36.9 (21.6) (9.5) (1.3) 4.5 Other segment information:Depreciation and amortisation - 12.7 0.7 - - 13.4Capital expenditure (1.4) (7.7) (1.8) (1.4) (2.6) (13.5) Cash flows relating to the discontinued operations are as follows: 2007 2006 Deluxe Hard Hard US Media Deluxe Rock Rock Holidays Services Film Total £m £m £m £m £m £mCash flows from operating activities (0.3) 45.0 (3.0) (53.0) 18.5 7.5Cash flows from investing activities (1.4) (17.5) (1.8) 0.1 (2.6) (21.8)Cash flows from financing activities (0.1) (4.4) (0.1) (9.2) (0.1) (13.8) (1.8) 23.1 (4.9) (62.1) 15.8 (28.1) 5. Dividends 2007 2006 £m £mEquity - ordinaryFinal for 2006 paid on 11 May 2007 - 4.0p (2005: 10.3p) per share 15.6 62.6Special for 2007 paid on 9 April 2007 - 65.0p (2006: nil) per share 352.5 -Interim for 2007 paid on 12 October 2007 - 2.0p (2006: 2.0p) per share 7.8 11.5 375.9 74.1 Following the sale of Hard Rock, a special dividend of 65.0 pence per share waspaid on 9 April 2007. The Directors have not proposed a final dividend in respect of the year ended 31 December 2007 (2006 - 4.0p). 6. Earnings (loss) per share 2007 2006 (restated) Before Before exceptional Exceptional exceptional Exceptional items items Total items items Total (a) Basic earnings per share Basic earnings per share is calculated by dividing the profit or lossattributable to equity shareholders by the weighted average number of Ordinaryshares in issue during the year, excluding Ordinary shares purchased by the Company and held as treasury shares. Profit (loss) attributable to equity shareholders (£m)Continuing operations 31.6 (36.9) (5.3) 49.3 65.2 114.5Discontinued operations 1.4 315.4 316.8 19.7 (17.0) 2.7Total 33.0 278.5 311.5 69.0 48.2 117.2 Weighted average number of Ordinary shares in 430.4m 430.4m 430.4m 587.5m 587.5m 587.5missue (m) Basic earnings (loss) per share (p)Continuing operations 7.3p (8.5)p (1.2)p 8.4p 11.1p 19.5pDiscontinued operations 0.4p 73.2p 73.6p 3.4p (3.0)p 0.4pTotal 7.7p 64.7p 72.4p 11.8p 8.1p 19.9p (b) Diluted earnings per share Diluted earnings per share is calculated by adjusting the weighted averagenumber of Ordinary shares in issue to assume conversion of all dilutivepotential Ordinary shares. The Group has two categories of dilutive potential Ordinary shares: share options and convertible debt. For share options, a calculation is made to determine the number of shares that could have been acquired at fair value (determined as the average annual market share price of the Company's shares) based on the monetary value of the subscription rights attached to outstanding share options. The number of shares calculated is compared with the number of shares that would have been issued assuming exercise of the share options. The convertible debt was not dilutive in either year. There is no difference in the profit (loss) used to determine diluted earningsper share from that used to determine basic earnings per share above. Weighted average number of Ordinary shares in 430.4m 430.4m 430.4m 587.5m 587.5m 587.5missue (m)Adjustment for share options (m) - - - 0.5m 0.5m 0.5mWeighted average number of Ordinary shares for 430.4m 430.4m 430.4m 588.0m 588.0m 588.0mdiluted earnings per share (m) Diluted earnings (loss) per share (p)Continuing operations 7.3p (8.5)p (1.2)p 8.4p 11.1p 19.5pDiscontinued operations 0.4p 73.2p 73.6p 3.4p (3.0)p 0.4pTotal 7.7p 64.7p 72.4p 11.8p 8.1p 19.9p (c) Adjusted earnings per share Adjusted earnings is calculated by adjusting profit attributable to equityshareholders to exclude discontinued operations, exceptional items, otherfinancial gains (losses), the net return on the defined benefit pension asset,unwinding of the discount in disposal provisions and amortisation of the equitycomponent of the convertible bond. Adjusted earnings is one of the businessperformance measures used internally by management to manage the operations ofthe business. Management believes that adjusted earnings assists in providing aview of the underlying performance of the business. Adjusted net earnings attributable to equity shareholders is derived as 2007 2006follows: (restated) £m £mProfit attributable to equity shareholders 311.5 117.2Discontinued operations (net of taxation and minority interest) (316.8) (2.7)Exceptional items before tax on continuing operations 45.2 (39.0)Other financials (gains) losses (0.5) (10.0)Net return on defined benefit pension asset (10.5) (6.7)Amortisation of equity component of convertible bond 3.6 3.0Unwinding of discount in disposal provisions 1.3 -Taxation on adjusted items and impact of reduction in tax rate to 28% (1.8) (35.0)Adjusted net earnings attributable to equity shareholders 32.0 26.8Weighted average number of Ordinary shares in issue (m) 430.4m 587.5mAdjusted earnings per share (p) 7.4p 4.6p 7. 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. 2007 2006 £m £mTotal borrowings 394.2 525.5Less: Cash and cash equivalents (72.1) (83.6)Less: Derivatives (2.5) (4.2)Less: Accrued interest (6.5) (0.7)Less: Unamortised facility fees 3.8 5.0Less: Discontinued operations - 5.2Net debt 316.9 447.2 8. Statement of changes in shareholders' equity Before minority Minority Total £m £m £mBalance as at 1 January 2006 156.7 11.4 168.1Exchange adjustments net of tax (28.3) (1.0) (29.3)Actuarial gain on defined benefit pension scheme net of tax 64.7 - 64.7Revaluation of available-for-sale securities 22.8 - 22.8Revaluation of available-for-sale securities recycled within net profit 12.1 - 12.1Net minority interest acquired - (8.1) (8.1)Issue of share capital 5.2 - 5.2Share buy-back (201.4) - (201.4)Dividends (74.1) (4.1) (78.2)Credit in respect of employee share schemes 0.4 - 0.4Profit for the year 117.2 1.8 119.0Balance as at 31 December 2006 75.3 - 75.3Exchange adjustments net of tax (4.4) - (4.4)Actuarial gain on defined benefit pension scheme net of tax 17.4 - 17.4Cumulative foreign exchange losses recycled within net profit 8.6 - 8.6Revaluation of available-for-sale securities (0.4) - (0.4)Revaluation of available-for-sale securities recycled within net profit (44.4) - (44.4)Adjustment of deferred tax from 30% to 28% 2.4 - 2.4Issue of share capital 0.1 - 0.1Purchase of own shares (2.1) - (2.1)Dividends (375.9) - (375.9)Debit in respect of employee share schemes (1.4) - (1.4)Profit for the year 311.5 - 311.5Balance as at 31 December 2007 (13.3) - (13.3) 9. Cash generated from operations 2007 2006 (restated) £m £mContinuing operationsOperating profit (loss) 23.1 126.9Exceptional items 45.2 (53.7)Operating profit (loss) before exceptional items 68.3 73.2 Depreciation and amortisation 28.5 28.9(Increase) decrease in working capital 6.6 (3.7)Other (1.6) 8.9 101.8 107.3Cash payments in respect of exceptional costs and provisions (15.8) (37.0)Cash generated from operations 86.0 70.3 10. Restatement of 2006 full year comparative The Group has amended its accounting policies in relation to exceptional itemsand the 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. 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 withaccounting best practice, the Group has decided to reclassify the net returnarising on the defined benefit pension asset from operating profit to netfinancing costs. These changes had no effect on total basic or diluted earnings per share. 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 Year to on pension Club 31.12.06 asset disposals Impairment 31.12.06 £m £m £m £m £mContinuing operationsOperating profit Mecca Bingo 63.2 (2.1) (6.1) 8.6 63.6 Top Rank Espana 8.9 - - - 8.9 Grosvenor Casinos 39.5 (3.2) - - 36.3 Blue Square 7.8 - - - 7.8 Gaming shared services (24.8) (1.2) - - (26.0) Other (17.2) (0.2) - - (17.4)Before exceptional items 77.4 (6.7) (6.1) 8.6 73.2Exceptional items 56.2 - 6.1 (8.6) 53.7Group operating profit 133.6 (6.7) - - 126.9Total net financing charge (40.7) 6.7 - - (34.0)Profit before taxation 92.9 - - - 92.9Taxation 21.6 - - - 21.6Profit for the year from 114.5 - - - 114.5continuing operationsDiscontinued operations 4.5 - - - 4.5Profit for the year 119.0 - - - 119.0 In addition, the 2006 comparatives have been restated to reflect the transfer of£13.9m of assets from property, plant & equipment to intangible assets as if ithad taken place on 1 January 2006. 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