View from City Road: Rank's leisure not all pleasure

THE flag that Rank Organisation carries for the leisure sector is looking frayed around the edges.

Debts of pounds 999m, although well shy of committed facilities of pounds 1.4bn, are unlikely to be cut significantly by disposals. Trading remains a case of swings and roundabouts.

The roundabout is a big one and lies outside the leisure field. Rank Xerox, Rank's office equipment associate, reported a reduced contribution of pounds 158.7m against pounds 137.3m for the year to 31 October, lowering its share of group operating profits from 46 to 42 per cent.

This year will again be tough for Xerox, particularly in the Far East and parts of Europe. Overall profits will, at best, be flat.

Rank's leisure businesses divided into two distinct halves during the year. The US showed signs of recovery, but the UK remained shrouded in recession.

The US provided the big swing in the company's performance. Profits climbed from pounds 4.7m to pounds 29.2m despite a pounds 15m loss in film distribution. Success stories included Rank Ahnert, back in profit, and Universal Studios Florida, which contributed nearly pounds 10m more profit as admissions grew by 20 per cent. Hard Rock cafes in the US and UK increased trading profits by pounds 17.5m.

Profits in the UK, however, declined by nearly 13 per cent to pounds 139m. Problems were spread across the board, although, as should be expected of any pacesetter, it managed to gain market shares.

While profits from the recreation division fell from pounds 59.4m to pounds 57.8m, bingo operations returned solid numbers as admissions and profits increased. Casinos, though, suffered from lower spending.

Holiday operations, which include Butlins and caravan parks, were squeezed by poor weather, rising unemployment and heavy summer discounting by overseas tour operators. Volume sales fell by 6 per cent.

Rank should recover slightly to pre-tax profits of over pounds 270m this year. That puts the shares on a p/e of more than 14 times at 695p, which is roughly in line with the market. A yield of 6 per cent is well above average and has prompted recent outperformance by the shares. But an unchanged dividend for two years running, if that looks likely to be the case, could dampen enthusiasm later in the year.

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