Final Results - Year Ended 31 December 1999

Rank Group PLC 25 February 2000 THE RANK GROUP PLC PRELIMINARY ANNOUNCEMENT FOR THE YEAR ENDED 31 DECEMBER 1999 - Operating profit before exceptional items up 12% at £307m (1998- £274m) - Pre-tax profit before exceptional items £228m (1998 - £247m) - Net exceptional charges - £120m - Earnings per share, before exceptional items, 19.9 pence (1998 - 22.0p) - Final dividend of 8.0 pence per share (1998 - 12.75p) - Disposals totalling half a billion pounds in the last six months - Further refocusing planned - 10% share buy-back Commenting on the results, Mike Smith, Chief Executive, said: 'In 1999 we took action both to reinvigorate and to reorientate the Group. The 12% increase in operating profit was achieved by taking an aggressive approach to performance improvements through cost control, increased margins and overhead reductions at a time of flat revenues. We have made significant disposals partly to refocus the Group and partly to raise cash. The proceeds give us greater flexibility for action and added confidence. These actions effectively complete the first phase of our strategy. Over the next few months we intend to narrow further the focus of the Group and get it into a position where there are a number of options which can be pursued in the interests of our shareholders. Given this confidence we will take an early opportunity to initiate a share buy-back within the 10% authority currently available to us. Trading for the first two months of 2000 is in line with our expectations.' ENQUIRIES: The Rank Group - Tel: 020 7706 1111 Mike Smith, Chief Executive Ian Dyson, Finance Director Kate Ellis-Jones, Investor Relations PRESS ENQUIRIES: The Maitland Consultancy - Tel: 020 7379 5151 Angus Maitland Laura Frost CONFERENCE CALL DETAILS: Friday 25 February - the meeting starts at 9.30am - call in at 9.20am UK dial in number - 020 8781 0598, European dial in number - +44 (0) 20 8781 0598 USA dial in number - +1 334 323 4002 Instant reply number - available at anytime from the end of the meeting on 25 February to 3 March 2000 UK dial in number - 020 8288 4459 - Access code 666 522 European dial in number - +44 (0) 20 8288 4459 - Access code 666 522 USA dial in number - +1 703 736 7336, Access code 666 522 CHIEF EXECUTIVE'S REVIEW 1999 was the year in which we began to reinvigorate and refocus the Group. The actions taken last year, together with those announced in the past week, demonstrate our commitment to maximising total shareholder return. Against a background of difficult conditions in some of our markets, we grew operating profit by 12%. This was a result of our actions on margins, costs and the restructuring announced last August, producing a reasonable financial outcome for the year. This is the first tangible public sign that the approach we described in August 1999 is having an impact. Specifically I can confirm that a reduction in fixed costs of £25m below the 1998 level has been achieved for 2000. Capital expenditure is being controlled so that we will achieve positive cash flow this year, before acquisitions and disposals, for the first time since 1994. The results across our businesses were mixed. Deluxe film was strong but Deluxe video weak. Holidays showed improvement. Gaming was strong. Hard Rock profits were lower but we have taken significant measures to reposition the business for 2000. Tom Cobleigh improved. The recently announced business disposals of Odeon and Pinewood Studios, together with the previously announced sales of Nightscene, Butlins hotels and Haven catered parks, total more than half a billion pounds. In making these disposals we not only raise funds but also avoid the capital expenditure necessary for the future development of these businesses. The cash raised gives us the much needed flexibility to reduce borrowings, tackle our capital structure, and prepare for small scale, value enhancing acquisitions. We have made some small acquisitions, in particular the US DVD manufacturing facility bought this month from Pioneer at a cost of less than $20m. Through this transaction we have acquired DVD capability whilst not adding new capacity to the market. There is considerable scope for capacity expansion within the facility and we are guaranteed the existing Pioneer DVD and VHS volume. This is an important strategic move. We are already processing increased volumes of DVD through our distribution activities. Following the recent disposals, whilst we still have some small businesses, we have retained at this time four major business groupings or divisions - Deluxe, Gaming, Hard Rock and Holidays - all of which have important brands with strong market positions capable of further development and growth. Within Deluxe we have achieved considerable expansion in film and made our initial investment in DVD. Holidays has opportunities to improve profits from the Butlins and Haven investments and the development plan for Warner. Gaming will continue to grow organically and there are real medium term hopes for liberalisation of legislation that will provide further scope for growth. Hard Rock will improve its core business following the changes made in 1999. Also, despite historical disappointments, we still believe that there is scope for brand related growth outside of the pure Hard Rock restaurant activities. We are regaining our confidence after a very difficult period. Given that we have now significantly reduced borrowings and ongoing cash conservation is the order of the day, there is less pressure on the short-term cash position. This, together with the belief that further cash realisations will take place this year, means that we can mount a share buy-back programme whilst we continue to exhibit financial prudence. Accordingly, we will take an early opportunity to initiate a 10% share buy-back within the authority available to us. We are gaining momentum in making the changes required at Rank. As always, there is a need to balance speed against the best outcome, but we have a number of further initiatives in active development including, of course, our efforts to sell our shareholding in Universal Studios Escape. Further refocusing is necessary and, in exploring our options, we include the prospect of involving strategic partners, particularly where this will accelerate the unlocking of shareholder value. As we go through this process we will continue to look at returning funds to shareholders and at the Annual General Meeting we will seek approval for a further share buy-back of up to 15%. OPERATING AND FINANCIAL REVIEW Profit before Tax and Exceptional Items Turnover Profit before exceptional items 1999 1998 1999 1998 restated* £m £m £m £m DELUXE 636 638 84 85 GAMING 406 402 69 58 HARD ROCK 240 239 42 47 HOLIDAYS 467 492 72 61 TOM COBLEIGH 59 47 8 7 CENTRAL COSTS AND - - (8) (17) OTHER ------ ------ ------ ------ Continuing 1,808 1,818 267 241 operations Discontinued 233 239 40 33 operations** ------ ------ ------ ------ 2,041 2,057 307 274 ====== ====== NET INCOME FROM - 23 ASSOCIATES MANAGED BUSINESSES (79) (50) INTEREST ------ ------ PROFIT BEFORE TAX 228 247 AND EXCEPTIONALS ====== ====== * an analysis of the 1998 restatement is set out in Note 1. ** discontinued operations include the results for Nightscene, Odeon and Pinewood Studios. BASIS OF REPORTING The presentation of the Group's results for 1999 reflects the following changes: - Implementation of FRS12 'Provisions, contingent liabilities and contingent assets'; - Change in accounting policy on pre-opening costs to write off as incurred, rather than deferring and writing off over up to five years; - Disclosure of divisional results before allocation of central costs and other income; and - Disclosure of the results of individual businesses within each division. The effect of the first two items is to reduce the 1998 profit before exceptionals by £6m. The impact on 1999 operating profit before exceptionals is not material. The third and fourth items have no impact on reported results, but amend the way in which divisional performance is presented. We firmly believe that highlighting the level of central and other costs separately from divisional performance and breaking down the divisions by business provides an improved insight into the Group's financial performance. The 1998 divisional results have been restated to reflect these changes. A table setting out the impact of all of these changes by division is shown in Note 1. SUMMARY OF RESULTS Operating profit before exceptional items was 12% ahead of 1998, despite turnover being marginally behind last year. This reflects significant improvements in margins, through more aggressive pricing and tight cost control, and the benefits of the restructuring announced last August. Strong results in Gaming, Holidays and Deluxe film were offset by a difficult trading period for Deluxe video and reduced profits at Hard Rock. The performance of each division is analysed below. Profit before tax (pre-exceptional) of £228m was 8% behind 1998, with the operating profit improvement more than offset by a poor performance from Universal and significantly higher interest charges. The Group's share of Universal was a net loss of £2m, compared to a profit of £22m in 1998. Operating profit was £5m behind 1998 and interest charges were up from £5m to £24m, reflecting the cessation of capitalisation of interest on the new park. Interest payable was £79m (1998 - £50m) reflecting a higher level of net debt and lower interest capitalised. Earnings per share were 19.9p (1998 - 22.0p). EXCEPTIONAL ITEMS Exceptional items within operating £m profit - Restructuring charge (52) - Hard Rock (46) Exceptional items within associates (46) Non-operating exceptional items 32 Exceptional items within interest (8) payable ------ (120) ====== The restructuring provision of £52m comprises redundancy payments, provisions for vacant properties and other costs associated with the restructuring announced with the interim results in August. A further charge of between £5m and £10m, which does not qualify to be recorded in 1999 under FRS12, is anticipated in 2000. The exceptional charge against Hard Rock comprises the following: £m Costs associated with the termination 23 of the NBA agreement Impairment charge required under FRS11 13 Provisions against investments and 10 receivables ------ 46 The NBA charge includes a compensation payment of £7m, an impairment provision against the owned NBA City Cafe in Orlando of £7m and costs associated with the termination of this business venture, including provisions for future obligations, of £9m. A further impairment charge of £13m has been made, as required by FRS11, relating to a number of under-performing owned cafes. Provisions against investments and receivables reflect write- offs associated with various joint ventures and other commercial relationships related to the extension of the Hard Rock brand. The Group changed its accounting policy on pre-opening costs in 1999. The change to the policy is to write-off these costs as incurred rather than deferring them and writing them off over a period of up to five years. This resulted in an exceptional charge for the Group's share of pre-opening costs incurred by Universal during the year. The impact on the Group's managed businesses was not material. Non-operating exceptional items include the profit on sale of Nightscene of £33m. During the year, the Group pre-paid £100m of expensive US$ private placement debt, giving rise to a one-off exceptional charge of £8m, included in interest payable. DIVISIONS All references to operating profit are before exceptional items and before the allocation of central costs. DELUXE TURNOVER OPERATING PROFIT 1999 1998 1999 1998 £m £m £m £m Film Processing 266 222 48 39 Video Duplication 370 416 36 46 ------ ------ ------ ------ 636 638 84 85 ====== ====== ====== ====== Film processing had an excellent year. A strong film line up, an enhanced contractual position and an improved European contribution led to record film footage processed of 3.2 billion feet, an increase of 23% over 1998. Turnover was up 20% and continued focus on operating efficiencies, particularly with the increasing use of the lower cost facilities, led to improved margins and a 23% increase in operating profit. Titles included the Star Wars film 'The Phantom Menace', 'Eyes Wide Shut' and the James Bond film 'The World is not Enough'. We are currently building a new laboratory in Italy which will be operational by the end of this year. This will enable us to improve service to our UK and European customers as we will be able to balance demand better at peak times. Video duplication had a difficult year with a general lack of big titles from our customers resulting in a 17% reduction in the volume of cassettes duplicated. Operating profit was down by 22% to £36m, reflecting the high fixed cost base of the business. Action was taken in the second half of the year to improve operating efficiency and further restructuring is in progress to enable greater utilisation of the lower cost Arkansas facility. During the year we expanded the European network with the acquisition of three duplication facilities in Sweden, Holland and Italy. Deluxe is a major distributor of DVDs with over 30m being shipped in 1999 (1998 - 8m). Further steps have been taken to participate in this high growth product market by entering into an agreement to acquire the DVD replication business of Pioneer Video Manufacturing Inc., based in Los Angeles. Electric Switch, a London based DVD authoring company, was also acquired. The Pioneer acquisition will provide Deluxe with a foothold in DVD replication and includes the existing DVD volume and a contract for video duplication and distribution. The facility is capable of significant future expansion to meet the increasing demand from customers. Initial discussions are in progress to further extend Deluxe's position within DVD. GAMING TURNOVER OPERATING PROFIT 1999 1998 1999 1998 £m £m £m £m Mecca Bingo 230 230 50 43 Grosvenor Casinos 123 114 18 14 Rank Leisure - Machine Services 53 58 1 1 ------ ------ ------ ------ 406 402 69 58 ====== ====== ====== ====== Gaming Division had an excellent year with operating profits up by 19%, with both Mecca Bingo and Grosvenor Casinos performing strongly. Their performance has continued to be strong in the first two months of 2000. Mecca continues to out-perform the market, achieving substantially higher admissions and profits per club than other major operators. Operating profit was up 16%, reflecting Mecca's strategy to attract more regular, high yielding, bingo players which has resulted in spend per head up 9% to almost £8. The strategy has been supported by a national advertising campaign, which included TV and newspaper coverage. Tight control of costs has improved the operating profit margin to 22% (1998 - 19%). During the year Dewsbury and Wrexham clubs were relocated and a new club was opened in Hunslet, Leeds. Five under-performing clubs were closed. Grosvenor Casinos performed exceptionally well increasing turnover and operating profit by 8% and 29% respectively. The London casinos increased admissions by 4%, assisted by the completion of the refurbishment at the Grosvenor Victoria, and handle per head increased by 11%. The Clermont benefited from an increase in the number of quality players which led to a significant increase in handle per head and profit contribution. The provinces increased admissions by 3% and handle per head by 8%. Two new casinos opened in 1999, Salford and Walsall, both of which were the result of new licence applications. The Newcastle casino was relocated and has improved profits considerably. Grosvenor is seeking licensing approval for further casino relocations in 2000. HARD ROCK TURNOVER OPERATING PROFIT 1999 1998 1999 1998 £m £m £m £m Hard Rock 240 239 42 47 1999, particularly the second half, was a period of significant change for Hard Rock. Greater emphasis has been placed on the need to improve the results of the core cafe estate. These efforts will also give confidence to current or anticipated franchise holders. The increased focus on the day to day cafe business has already started to come through in both revenues and cost performance. The like for like sales decline was 9.2% for 1999 (1998 - 10.6%), but was 6.7% in the fourth quarter and this has been maintained in the first two months of 2000. These improved like for like percentages were helped by an advertising campaign, the first in Hard Rock's history, which stimulated traffic to the cafes. An expanded campaign is planned for spring and summer of 2000. Overall margin performance improved, particularly in merchandise. Cafe labour costs were strictly controlled. In addition to improvements at cafe level, the head office has been restructured which will result in a full year reduction in costs of £6m. Despite these actions, operating profit was down from £47m to £42m. The improvements in the core business were more than offset by a lack of one-off income from franchise sales and brand extensions (1998 - £6m). We will continue the pursuit of diversification for Hard Rock but our efforts will centre on leveraging the Hard Rock brand. As a consequence of this approach, the decision was taken to withdraw from our arrangement with the NBA, which had required the Group to finance and build up to ten NBA City restaurants world-wide over the next four years. This decision has resulted in an operating exceptional charge of £23m. A further exceptional write-off of £10m has been made against various joint ventures and commercial arrangements, including Hard Rock Beer. HOLIDAYS TURNOVER OPERATING PROFIT 1999 1998 1999 1998 £m £m £m £m Butlins 88 127 (2) 3 Haven 253 239 42 42 Warner 59 52 14 12 Oasis 37 36 9 3 Intra-group and (17) (17) - - other ------ ------ ------ ------ 420 437 63 60 Resorts USA 47 55 9 1 ------ ------ ------ ------ 467 492 72 61 ====== ====== ====== ====== Holidays operating profit grew by 18% with like-for-like operating profit up 28%, after adjusting for disposals, acquisitions and new openings. UK like for like growth was 15%, despite a difficult UK holiday market. Turnover declined due to the reduced capacity at the two Haven, ex-Butlins sites, Ayr and Pwllheli, and the disposal of Haven's catered parks and Butlins hotels. Butlins results were disappointing, although there was an improvement over 1998 after adjusting for the disposal of hotels and transfer of Ayr and Pwllheli to Haven. The three Butlins Family Entertainment Resorts at Skegness, Bognor and Minehead opened at Easter 1999. Like for like summer bookings (May to October) were broadly in line with expectations with a 12% increase in tariff income but the remainder of the year fell below expectations. Retail spend increased slightly and customer satisfaction was high. However, operating costs, including initial opening costs and the impact of the national minimum wage and the working time directive, were higher than anticipated. We have learnt lessons in 1999 and these will help us to meet the challenge of improving performance. We need to achieve high winter, as well as summer, occupancy and this will require adjustments in 2000 to the winter marketing programme, which will be targeted at specific audience groups. The launch of Butlins.co.uk has enabled customers to book a Butlins holiday on- line. We will also continue to focus our attention on operational effectiveness and in this regard our experience at Oasis is to expect that the run up period will stretch through 2000. Haven's core business was strong with like-for-like park tariff up 3%. Overall operating profit was flat as the benefit from the addition of Ayr, Pwllheli and Campotel was offset by the disposal of four Haven catered parks. Haven had a record year for caravan sales with over 4,200 caravans sold, an increase of 4%. Haven Europe performed well and acquired three sites, increasing the number of owned sites to eight. Warner's operating profit was up 17% with tariff growth of 14%. Cricket St Thomas in Somerset opened last September, and Thoresby Hall in Nottinghamshire is due to open in September 2000. Oasis significantly improved profitability with tariff growth of 9%, retail spend of 5% and tight control of operating costs. It benefited from significant repeat business from satisfied customers and is expected to improve further this year, helped by the addition of a Hard Rock Cafe which will open at Easter this year. Resorts USA, which is being run at a reduced level of activity with lower overhead costs and a focus on cash generation, increased profits to £9m and generated cash of £15m, thereby justifying the decision to retain the business in the short term. TOM COBLEIGH TURNOVER OPERATING PROFIT 1999 1998 1999 1998 £m £m £m £m 59 47 8 7 Tom Cobleigh improved turnover as a result of new openings and a steady improvement in like for like sales which were up 2% in the second half. Eight new pubs opened in the year including one in each of the three Butlins Family Entertainment Resorts, two in Scotland and the first three in the South of England. The 14% improvement in operating profit was driven by the increase in turnover. Changes to marketing and the successful launch of a new menu broadened the appeal of the pubs to a wider range of customers. Margin improvements were achieved by pricing reviews and improved purchasing. Profits were held down by the absorption of launch and pre-opening costs during the year. CENTRAL COSTS AND OTHER INCOME Central costs and other income decreased from £17m in 1998 to £8m in 1999. This reflects a significant reduction in central overheads following the restructuring announced in August and the inclusion of one-off income in 1999 of £4m. DISCONTINUED BUSINESSES TURNOVER OPERATING PROFIT 1999 1998 1999 1998 £m £m £m £m Odeon 143 127 23 20 Nightscene 75 99 12 9 Pinewood Studios 15 13 5 4 ------ ------ ------ ------ 233 239 40 33 ====== ====== ====== ====== Nightscene was sold in October 1999 to Northern Leisure for £150m. Subsequent to year end, the Group has announced the disposal of Odeon to Cinven for £280m and Pinewood Studios to a consortium led by Michael Grade for £62m. ASSOCIATES UNIVERSAL STUDIOS ESCAPE £m FIRST HALF SECOND HALF FULL YEAR 1999 1998 1999 1998 1999 1998 RANK SHARE Turnover 75 58 114 56 189 114 Operating profit 17 13 4 14 21 27 Interest (6) (3) (17) (2) (23) (5) ----- ----- ----- ----- ----- ----- Net income 11 10 (13) 12 (2) 22 ===== ===== ===== ===== ===== ===== Islands of Adventure opened at the end of May 1999. Performance has fallen short of expectations, particularly in the fourth quarter. This was due to a combination of weakness in the Orlando market, poor weather, including unprecedented hurricane activity, and a disappointing Millennium (in line with most destinations in the USA). Actions have been taken to address the position, in particular in the area of sales and marketing. The poor attendance figures resulted in operating profit of £4m in the second half of 1999, compared to £14m in 1998 and £17m in the first half of the year, prior to the opening of the new park. The Group's share of interest was £23m (1998 - £5m) with the increase reflecting the cessation of capitalisation of interest on the debt funding associated with Islands of Adventure. BRITISH LAND The British Land joint venture made a contribution after interest of £2m in 1999 (1998 - £1m) INTEREST 1999 1998 £m £m Interest incurred 96 89 Capitalised (11) (17) Amortisation of discount on (8) (23) Xerox proceeds Amortisation of capitalised 2 1 interest ------ ------ Managed business interest 79 50 ------ ------ Net debt 1,162 1,057 Interest incurred increased by 8%, reflecting higher levels of average net debt, with the significant capital expenditure offsetting the impact of receipts from the disposal of businesses. Interest capitalised was lower due to the opening of Islands of Adventure in May 1999. The final £220m payment in respect of the sale of the Group's investment in Rank Xerox was received on 30 June 1999, with £220m having been received a year earlier. These payments account for the amortisation of the reduction in the discount on Xerox proceeds. Amortisation of capitalised interest relates to the Group's interest in Universal. The average cost of borrowing was 7.3% (1998 - 8.2%). Interest cover, expressed as the ratio of Group operating profit before exceptional items to managed business interest, was 3.9 times (1998 - 5.5 times). The fixed charge cover, excluding lease commitments, was 3.1 times (1998 - 3.9 times). EXCHANGE RATES The net translation effect of changes in foreign currencies was to increase profit before tax and exceptional items by £2m. TAXATION The tax rate on Rank managed businesses, excluding exceptional items, was 22.4% (1998 as restated: 23.2%). In the United Kingdom, the tax charge has benefited from both the previous disclaimer of capital allowances, with allowances in the year exceeding the depreciation charge, and the abolition of Advance Corporation Tax (ACT) effective after 5 April 1999. The tax charge on the Group's overseas profits has benefited from the tax losses available in the United States. CASH FLOW 1999 1998 £m £m Cash inflow from operating 315 360 activities Capital expenditure (385) (440) Fixed asset disposals 31 178 ------ ------ Operating cash flow (39) 98 Distributions from 16 24 Associates Acquisitions (11) (46) Investments (85) (131) Disposals 376 237 ------ ------ 257 182 Interest, tax and dividend (331) (207) payments ------ ------ (74) (25) ====== ====== Net cash inflow from operating activities was £315m (1998 - £360m). The reduction is due to adverse movements in working capital mainly associated with contract prepayments in Deluxe. Capital expenditure by division was as follows: 1999 1998 £m £m Deluxe 45 49 Gaming 42 79 Hard Rock 32 50 Holidays 182 154 Tom Cobleigh 12 25 Discontinued operations 72 83 ------ ------ 385 440 ====== ====== Expenditure in the first half of the year was £253m, but has slowed significantly in the second half as major capital programmes (e.g. Butlins) have been completed. Acquisitions in 1999 were Campotel, Electric Switch and Deluxe video duplication facilities in Italy, Holland and Sweden. Investments include expenditure related to Universal Studios Escape and Universal Studios Japan. Disposals include Nightscene (£139m), Rank Xerox (£220m). Interest, tax and dividend payments were higher in 1999 due to the deferred payment of £32m for the 1998 interim dividend. The 1997 final dividend was subject to a scrip alternative effectively reducing total cash paid in 1998. NET DEBT At 31 December 1999, net debt was £1,162m compared with £1,057m at 31 December 1998. 77% of net debt was denominated in US and Canadian dollars with most of the balance in sterling. Net debt as a percentage of shareholders' funds was 98% compared with 86% at 31 December 1998. Subsequent to the year end, the Group announced the disposal of Odeon and Pinewood Studios. The impact of these disposals is to reduce net debt at 31 December 1999 to £834m on a proforma basis. Proforma gearing reduces to 60% and fixed charge cover improves to 3.7 times. SHAREHOLDER INFORMATION ACCOUNTING POLICIES Accounting policies are consistent with those used in 1998 except for the adoption of Financial Reporting Standard ('FRS') 12 ('Provisions, contingent liabilities and contingent assets') and the change to an immediate write-off basis for pre-opening expenses. Details of the effect of these changes and FRS15 ('Tangible fixed assets'), which has not been adopted, are set out on page 22. DIVIDEND The proposed final dividend of 8.0p per Ordinary share, together with the interim dividend of 4.0p per Ordinary share, makes a total for the year of 12.0p per Ordinary share. The total dividend for 1999 will be covered 1.7 times by earnings before exceptional items. The record date for the final dividend is 7 April 2000 and the payment date is 5 May 2000. ANNUAL GENERAL MEETING The AGM will be held at 11.30am on 27 April 2000 at the Royal Garden Hotel, Kensington High Street, London W8 4PT. REPORT AND ACCOUNTS The Report and Accounts and the Notice of the Annual General Meeting will be posted to shareholders towards the end of March. Copies will be available from the Secretary, The Rank Group Plc, 6 Connaught Place, London W2 2EZ. GENERAL The financial information contained in this announcement is based on that contained in the full audited financial statements for the year ended 31 December 1999 dated 24 February 2000. The Directors approved this announcement on 24 February 2000. This announcement does not constitute full accounts within the meaning of S.240 Companies Act 1985. The 1998 accounts for The Rank Group Plc have been delivered to the Registrar of Companies. The 1999 accounts for The Rank Group Plc have not yet been delivered to the Registrar of Companies. GROUP PROFIT AND LOSS ACCOUNT For the year ended 31 December 1999 1998 Before Except- Total Before Except- Total Except- ional Except- ional ional Items ional Items Items Items £m £m £m £m £m £m TURNOVER Cont- 1,799 1,799 1,818 1,818 inuing oper- ations Acqui- 9 9 - - sitions ------ ------ ------ ------ 1,808 1,808 1,818 1,818 Discon- 233 233 239 239 tinued oper- ations ------ ------ ------ ------ 2,041 2,041 2,057 2,057 ------ ------ ------ ------ OPER- ATING PROFIT Contin- 265 (98) 167 241 (94) 147 uing oper- ations (Notes 2&3) Acqui- 2 - 2 - - - sitions ------ ------ ------ ------ ------ ------ 267 (98) 169 241 (94) 147 Discont- 40 - 40 33 (5) 28 inued oper- ations ------ ------ ------ ------ ------ ------ 307 (98) 209 274 (99) 175 Share of 28 (46) (18) 31 (24) 7 asso- ciates and joint ventures ------ ------ ------ ------ ------ ------ 335 (144) 191 305 (123) 182 NON-OPER- - 32 32 - (207) (207) ATING ITEMS (Note 3) ------ ------ ------ ------ ------ ------ PROFIT 335 (112) 223 305 (330) (25) (LOSS) BEFORE INTEREST INTER- EST: Group (79) (8) (87) (50) - (50) Share of (28) - (28) (8) - (8) asso- ciates and joint ventures ------ ------ ------ ------ ------ ------ (107) (8) (115) (58) - (58) PROFIT 228 (120) 108 247 (330) (83) (LOSS) BEFORE TAX Tax (51) 13 (38) (55) - (55) (Note 4) ------ ------ ------ ------ ------ ------ PROFIT 177 (107) 70 192 (330) (138) (LOSS) AFTER TAX Minority (2) - (2) (3) - (3) inter- ests Pref- (21) - (21) (21) - (21) erence divi- dends ------ ------ ------ ------ ------ ------ EARNINGS 154 (107) 47 168 (330) (162) (LOSS) ====== ====== ====== ====== ====== ====== Earnings 19.9p (13.8)p 6.1p 22.0p (43.2)p (21.2)p (loss) per Ordinary share Diluted 20.9p (12.8)p 8.1p 22.9p (39.9)p (17.0)p earnings (loss) per Ordinary share GROUP BALANCE SHEET At 31 December 1999 1998 (as restated) £m £m FIXED ASSETS Intangible assets 4 3 Tangible assets 1,938 1,872 Investments 390 348 ------ ------ 2,332 2,223 ------ ------ CURRENT ASSETS Stocks 88 69 Debtors (including amounts 523 645 falling due after more than one year) Investments 13 16 Cash and deposits 94 79 ------ ------ 718 809 CREDITORS (amounts falling due within one year) Loan capital and borrowings (127) (88) Other (459) (542) ------ ------ (586) (630) NET CURRENT ASSETS 132 179 ------ ------ TOTAL ASSETS LESS CURRENT 2,464 2,402 LIABILITIES CREDITORS (amounts falling due after more than one year) Loan capital and borrowings (1,142) (1,064) Other including provisions (124) (97) ------ ------ 1,198 1,241 ====== ====== CAPITAL AND RESERVES Called up share capital 123 123 Share premium account 8 8 Other reserves 1,053 1,098 ------ ------ SHAREHOLDERS' FUNDS 1,184 1,229 Equity interests 964 1,011 Non-equity interests 220 218 MINORITY INTERESTS 14 12 (including non-equity interests) ------ ------ 1,198 1,241 ====== ====== GROUP CASH FLOW STATEMENT For the year ended 31 December 1999 1998 £m £m NET CASH INFLOW FROM 315 360 OPERATING ACTIVITIES (Note 6) DISTRIBUTIONS FROM 16 24 ASSOCIATED UNDERTAKINGS RETURNS ON INVESTMENT AND SERVICING OF FINANCE Interest received 9 7 Interest paid (108) (89) Dividends paid to (19) (20) preference shareholders and minorities (118) (102) TAX PAID (NET) (51) (55) CAPITAL EXPENDITURE Purchase of investments (3) (4) Purchase of tangible fixed (385) (440) assets Investments in associates (82) (127) and joint ventures Sale of fixed assets and 31 178 assets held for disposal (439) (393) ACQUISITIONS AND DISPOSALS Purchase of subsidiaries (11) (47) Sale of businesses and 379 237 investments Net cash (disposed) (3) 1 acquired 365 191 ORDINARY DIVIDENDS PAID (162) (50) ------ ------ CASH (OUTFLOW) BEFORE USE (74) (25) OF LIQUID RESOURCES AND FINANCING ====== ====== MOVEMENTS IN NET DEBT Cash (outflow) before use (74) (25) of liquid resources and financing Net debt of acquired (2) (1) subsidiaries Repurchase of minority - (25) Preference shares Contribution from - 9 minorities Increase in finance leases (10) (9) Exchange movement (19) 3 Issue of Ordinary share - 3 capital ------ ------ Increase in net debt (105) (45) Net debt at 1 January (1,057) (1,012) ------ ------ Net debt at 31 December (1,162) (1,057) ====== ====== GROUP RECOGNISED GAINS AND LOSSES For the year ended 31 December 1999 1998 £m £m Profit (loss) for the 68 (141) financial year Currency translation (7) 4 differences on foreign currency net investments ------ ------ TOTAL RECOGNISED GAINS AND 61 (137) LOSSES FOR THE YEAR ------ ====== Prior year adjustments - Write-off of managed (26) business pre-opening costs - Write-off of Universal (37) Studios Escape pre-opening costs - Implementation of FRS12 (36) - Tax impact 12 ------ (87) ------ Total recognised gains and (26) losses since last annual report ====== MOVEMENTS IN SHAREHOLDERS' FUNDS For the year ended 31 December 1999 1998 £m £m Profit (loss) for the 68 (141) financial year Dividends payable (112) (161) ------ ------ Retained loss for the year (44) (302) Other recognised gains and (7) 4 losses (net) Issue of Ordinary share - 3 capital Shares issued in lieu of - 56 dividends Goodwill realised on 6 5 disposal ------ ------ NET MOVEMENT IN (45) (234) SHAREHOLDERS' FUNDS ------ ------ Opening shareholders' funds 1,316 1,518 as previously stated Prior year adjustments - Write-off of managed (26) (28) business pre-opening costs - Write-off of Universal (37) (13) Studios Escape pre-opening costs - Implementation of FRS12 (36) (26) - Tax impact 12 12 ------ ------ OPENING SHAREHOLDERS' FUNDS 1,229 1,463 AS RESTATED ------ ------ CLOSING SHAREHOLDERS' FUNDS 1,184 1,229 ====== ====== NOTES TO THE ACCOUNTS 1. ACCOUNTING POLICIES The Group has adopted Financial Reporting Standard ('FRS') 12 and has also changed its accounting policy relating to the treatment of pre-opening expenses. FRS 12 - Accounting for provisions, contingent liabilities and contingent assets The Group has adopted this standard and has restated its results to reflect two aspects of the standard: - clarification of the date on which a commitment is recognised for accounting purposes; and - the requirement for a provision to be made for onerous contracts such as vacant leasehold properties. The impact has been to reduce shareholders' funds at 31 December 1998 by £36m and 1998 operating profit by £8m. PRE-OPENING EXPENSES The Group's previous policy was to amortise pre-opening expenses over periods of three to five years after opening. A new US accounting standard came into effect during the year which requires the immediate write-off of such expenses which directly impacts the results of Universal Studios Escape ('USE'). In order to maintain comparability between USE figures available in the United States and those included in the Group's results, the Board decided to align Rank's own policy, both for USE and its managed businesses. Because of their materiality, the write-off of USE's pre-opening expenses has been shown as an exceptional item charged in arriving at the Group's share of operating profit from associates. The impact of this change has been to reduce shareholders' funds by £37m in respect of USE and £26m for Rank's managed businesses as at 31 December 1998. The restated 1998 profit and loss account results in an increase in operating profit before exceptional items of £2m and an exceptional loss for USE of £24m. In addition to the above changes in accounting policy, the Group has changed the basis of reporting central costs. The 1998 divisional results have been restated to reflect all of these changes as set out below. As FRS12 Pre- Central As Reported £m Opening Costs restated £m Costs £m £m £m Deluxe 84 (4) - 5 85 Gaming 53 (1) 2 4 58 Hard Rock 48 (3) - 2 47 Holidays - UK 56 (1) - 5 60 Holidays - US 1 - - - 1 Holidays ------ ------ ------ ------ ------ 57 (1) - 5 61 Tom 6 - - 1 7 Cobleigh Central (3) 4 - (18) (17) costs ------ ------ ------ ------ ------ Continuing 245 (5) 2 (1) 241 operations Discont 35 (3) - 1 33 inued operations ------ ------ ------ ------ ------ 280 (8) 2 - 274 ====== ====== ====== ====== ====== FRS 15 - Tangible fixed assets This standard is effective for accounting periods ending on or after 23 March 2000. Rank has decided not to adopt the standard early but will adopt it for its 2000 interim results to be published in September 2000. The standard will not require the restatement of previously reported results, but will lead to an increase in the depreciation charge as Rank will be required to depreciate all its properties. At present, no depreciation is provided on properties which the Directors consider are sufficiently well maintained to ensure that their residual values are such that any depreciation would be insignificant. 2. Geographical analysis of continuing operations, before exceptional items: TURNOVER BY ORIGIN OPERATING PROFIT BY ORIGIN 1999 1998 1999 1998 £m £m £m £m United Kingdom 946 935 141 122 North America 736 749 104 95 Rest of the World 126 134 22 24 ------ ------ ------ ------ Continuing 1,808 1,818 267 241 operations ====== ====== ====== ====== 3. Exceptional and non-operating items: 1999 1998 £m £m Exceptional items: Restructuring costs (52) - Hard Rock pre-opening expenses (7) Hard Rock re-organisation and (46) - impairment Impairment of other fixed assets - (92) ------ ------ (98) (99) Universal Studios Escape (46) (24) ------ ------ (144) (123) ====== ====== Non-operating items: Net loss (including provision for loss) - (54) on disposal of properties Loss (including provision for loss) on (1) (153) disposal of continuing operations Net profit on disposal of discontinued 33 - operations ------ ------ 32 (207) ====== ====== 4. The tax charge before exceptional items may be analysed as follows: 1999 1998 £m £m Rank subsidiaries 51 52 Associates and joint ventures - 3 ------ ------ 51 55 ====== ====== 5. The weighted average number of shares used in the calculation of earnings per share is 773.2m (1998: 765.0m). 6. Reconciliation of operating profit to cash flow from operating activities: 1999 1998 £m £m Operating profit 209 175 Exceptional provision for impairment of 98 99 operating assets ------ ------ 307 274 Cash payments in respect of exceptional (22) (5) costs and provisions Depreciation 139 136 (Increase) in working capital (96) (43) Other items (13) (2) ------ ------ Net cash inflow from operating 315 360 activities ====== ======

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