Outlook: Re-organisation at Rank

AS KITCHEN sink operations go, Mike Smith's first set of results in charge of the ailing Rank organisation was not a bad stab. The dividend was cut by a quarter, capital expenditure was slashed by a half and one in four management posts are disappearing, including two occupied by former board directors.

Why, then, did the market get that queasy feeling, like stepping off one of Rank's theme park rides, that the new broom has not swept quite clean enough?

The problem is not so much that the individual businesses are badly run, though heaven knows there is room for improvement, but that there is no cohesion between the various moving parts. The group's complicated history of buying and selling has left it with a ragbag of businesses ranging from Odeon cinemas, Butlins holiday camps and bingo halls to film processing, pub restaurants and casinos.

Does Rank understand its markets or is the identikit customer a Japanese tourist wandering around around Hyde Park Corner with a knotted hankie on his head and a camcorder over his shoulder unable to find the flagship Hard Rock Cafe because it is covered in scaffolding?

Worse still, the management has been spending cash like the proverbial man with no arms in one of Rank's amusement arcades.

In the last three years, the group has consumed close on pounds 2bn of investment and returned just pounds 20m in additional operating profit. Butlins alone has soaked up pounds 140m in a bid to shed its Hi-Di-Hi image and become a wannabe Center Parc

Coming as he does from a background in the betting industry, Mr Smith knows all about the dangers of throwing good money after bad. He is determined not to repeat the mistakes of the previous chief executive, Andrew Teare, who bet everything on one last desperate punt and ended up losing his job and very nearly the ranch.

Mr Smith has made a start by stopping cash bleeding from the group, beginning with the dividend, and targetting better returns.

But the root of Rank's problem is that it is stuck with a bunch of businesses that are generally low growth, cash-hungry and under siege from better- run competitors.

That is why Rank has underperformed the market by 60 per cent in the last three years and fallen out of the Footsie. Unless Mr Smith comes up with more radical surgery, perhaps even a break-up of the group starting with the Tom Cobleigh pubs chain and nightclubs, then investors are destined to remain on the same diet of thin rations.