City surprised as Rank finally turns the corner

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The Independent Online
IS THE worst really over for Rank? The troubled leisure conglomerate has been in decline for most of the past decade. But yesterday, for the first time in years, Rank was able to indicate that trading was looking up.

Douglas Yates, the acting chief executive before Mike Smith, a former Ladbroke director, takes over in April, said blockbuster films such as Shakespeare in Love and A Bug's Life had boosted visits to its Odeon cinemas. Like-for-like sales in the Hard Rock Cafe chain had also improved. Bookings at the Butlins holiday camps were up 17 per cent. "It's very early days, we're only six weeks into the year," Mr Yates said. "But I'm feeling a bit brighter than I was before."

The suggestion that Rank might finally be turning the corner was greeted with surprise in the City, where the shares jumped by more than 10 per cent to 226.25p. Investors were also relieved that results for the year to December had turned out to be no worse than expected.

Nevertheless, that could not disguise the fact that the figures were pretty dreadful. In the second half of the year, profits fell in every single one of Rank's divisions. Butlins, which suffered from the poor summer weather and the closure of a number of sites for construction work, reported a 21.5 per cent drop in second-half profits. The Deluxe video duplication business, which mismanaged a huge order for videos of the hit film Titanic, saw profits slide by 13.2 per cent.

On top of all this, Rank was forced to take a number of exceptional charges. The company charged pounds 98m against profits to allow for the reduced value of its Oasis Lakeland Holiday Village and two former Butlins sites. The provision also covered Tom Cobleigh, effectively admitting that Rank overpaid when it purchased the pubs chain for pounds 123m in 1996.

A further pounds 218m charge covered the reduced value of the Resorts USA business, which is likely to be sold for about pounds 60m, and a handful of night clubs and bingo halls. Altogether, Rank reported a full-year pre-tax loss of pounds 51m.

However, investors are already looking ahead to what may happen when Mr Smith takes over. Most industry analysts believe that the shares are trading at a substantial discount to their breakup value.

Sir Denys Henderson, Rank's chairman, insisted yesterday that there would be no fire sale. However, Mr Smith is still expected to flog a few businesses. The prime candidate for disposal is Deluxe, which could fetch about pounds 800m. "All the rest of Rank is about retailing leisure and entertainment to consumers," says Jane Anscombe, an analyst at Henderson Crosthwaite. "But Deluxe is about managing contracts with large studios." She also believes that Tom Cobleigh would fit better with a brewing group.

Whatever Mr Smith decides to do, however, the City is feeling more positively disposed towards Rank than it has for some time. At a substantial discount to the 320p breakup value Henderson Crosthwaite puts on them, Rank shares may finally offer some value.