Rank, the embattled bingo and casino operator, has scrapped its final dividend and slashed its capital expenditure budget to avoid breaching its banking covenants.

The company, which has been hit hard by the smoking ban and by restrictions on high-jackpot machines, announced a package of measures yesterday aimed at preserving its cash resources and stabilising trading.

Rank also revealed that it was preparing to transfer its pension fund to an insurer and was in “active discussions” with interested parties, understood to include Paternoster, Legal & General, Aviva and AIG. Its pension fund, which is in surplus, has 20,000 members and assets of £650 million.

In a trading update covering the 49 weeks to December 9, the group announced a 1 per cent increase in like-for-like sales and said it expected full-year profits to be “broadly in line” with recently downgraded forecasts.

Like-for-like sales at its Mecca Bingo chain fell by 4 per cent over the period, although in the 14 weeks after the scrapping of so-called Section 21 gaming machines, the decline reached 18 per cent. Rank insisted that the recent performance represented a “stabilisation in revenue” since October’s profit warning, with an improvement in spend per head offsetting a continuing decline in admissions.

After the scrapping of Section 21 machines under the Gambling Act, the group has been forced to remove 950 machines with a £500 jackpot from its Mecca clubs and a further 230 terminals from its Grosvenor casinos.

Like-for-like revenues at Grosvenor were flat over the year but fell by 7 per cent in the period after the machines were abolished on September 1. The smoking ban caused a reduction in spend per head as punters spent less time at the tables.

The bright spots for Rank were the 34 per cent jump in like-for-like sales at Blue Square, its internet arm, and a rise of 8 per cent at Top Rank España, its Spanish bingo clubs. However, both businesses experienced a slight slowing of growth in recent weeks.

Ian Burke, Rank’s chief executive, said that the short-term trading outlook remained “challenging” and he outlined a number of initiatives addressing its position, including the scrapping of the final dividend.

Mr Burke, a former chief executive of Holmes Place, the health club chain, has also cut next year’s capital expenditure from £50 million to £20 million. Several refurbishments and extensions have been put on hold, as well as three openings.

He also announced the closure of the Grosvenor Casino in Liverpool, mainly as a result of April’s rise in gaming duty. This lifted the tax rate for the club from 2.5 per cent to 15 per cent, pushing it to a loss of £100,000.

The company said that it was “currently operating within its banking covenants” and expected that position to be maintained after the dividend and capital expenditure cuts – “assuming that trading continues broadly in line with current levels”.

Shares of Rank, which were trading at 246¼p a year ago, fell by 6p to 101½p, despite persistent bid speculation. Genting, its Malaysian rival, and the Richardson property family have both built stakes of about 10 per cent, although Mr Burke insisted that the speculation was not diverting his attention from turning Rank around. “I don’t think it’s a distraction,” he said.

— David Boden, the former head of Rank’s gaming businesses, is advising the developers of the Hippodrome theatre in London’s Leicester Square on their application to turn the former nightclub into a casino. The licence application was refused this year but an appeal is due to be heard next summer. If a licence is granted, Mr Boden would become a non-executive director of the casino.

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