Evoke (LSE:EVOK) — Interim Results

0:00 Good afternoon, and welcome to the EVOKE PLC interim results investor presentation. Throughout the quarter presentation, investors will be in listen only mode. Questions are encouraged and can be submitted at any time by the q and a tab situated in the right corner of your screen. Simply type in your questions and press send. The company may not be in a position to answer every question it receives in the meeting itself. However, the company can review all the questions submitted today and publish responses where it's appropriate to do so. Before we begin, I'd like to submit the following poll. I'd now like to hand you over to Per Widderstrom, CEO. Good afternoon to you, sir.

0:31 Good afternoon everyone and thanks for joining us today for our H1 twenty twenty four results. I am Per Widdestrom and I have now been the CEO of EVOKE for ten months. We already gave you the key headlines of our first half in our trading update a month ago and action numbers for H1 are exactly in line with the guidance we gave, so we are going to keep today fairly brief. I will start with a short summary, including the actions we are taking to address performance, including details of our current trading. This before Sean walks through the financials, and then I cover our strategic progress before taking your questions. The first half financial results are exactly in line with our trading update announcement a few weeks ago, but let me start by reiterating what I said before, that these results are disappointing and are not acceptable.

1:30 We understand exactly what went wrong, and we have taken swift corrective actions to address the problems, which Sean and I will talk you through in more detail shortly. We are seeing good traction from our decisive actions, and I am pleased to say that Q3 to date is in line with our 5% to 9% growth target for H2, and we remain highly confident on delivering an improvement in adjusted EBITDA margin to around 21%. We are absolutely laser focused on delivering our commitments for H2, and we have implemented a number of tactical actions focused on short term performance turnaround to ensure we deliver these targets in the second half. But we have no doubt that the actions we are taking are much more significant than this, and are much more strategically positive, focused on our value creation plan and setting up the business for the longer term.

2:29 We are seeing steady improvements in our run rates, but I am really excited about our growing capabilities and what this means for our future profitability. Turning to slide three, and to cover current trading and what we are seeing and expect to see in the second half. There is a short summary on the page of what we covered in our trading update, around why the H1 performance was behind the plan and the actions we have taken to address it. You can also see some of the wide range of initiatives and improvements that we will be landing across the second half, in particular the improvements in our products, the way we do customer lifecycle management and our overall customer value propositions.

3:15 These are fundamental shifts that will drive significant longer term benefits, but we also expect to see some immediate uplifts as things land during the course of the second half. We have already made several changes in the past few months to address short term performance and drive improvements, but it's fair to say that a lot of the really exciting initiatives are still to come in Q3 and Q4. In terms of what we are seeing in the business right now, both the end of Q2 and start of Q3 have seen strong underlying progress in our year on year growth rate, and revenue growth in Q3 up to August 10 is consistent with our 5% to 9% growth target range.

4:03 The period benefits slightly from the timing of the Euros, but the main driver of growth has been strong trends in our core customer cohort of mid value customers, and also strong ongoing growth in online gaming in our core markets, which is really the heart and engine of the business. So it's pleasing to see this is where the growth is coming from. With that, I'm going to hand over to our CFO, Sean Wilkins, to run through our financials and wider outlook. And then I will come back to expand on some of these strategic improvements we have been making. Thanks Per, and good afternoon everyone. I'm Sean Wilkins, the CFO, and I've now been with the business for six months. This is a hugely exciting time for the group, as we are undertaking a total transformation of the business.

4:53 This will deliver stronger revenues, stronger growth, higher margins and more sustainable market leading positions. As with any transformation of this scale, the route to success is never a straight line. We had some successes and some challenges in the first half, and the results, you can see on slide five, for the first half are not where we wanted them to be. We already provided the main financial headlines last month, with revenues down 2% and an adjusted EBITDA margin of 13% to 14. So there are no surprises here. As we discussed with the trading update, we didn't see the returns expected from our increased marketing investment. And with the operational gearing in our Retail business, this meant that adjusted EBITDA of £116,000,000 was about 35,000,000 to £40,000,000 lower than we had expected.

5:43 This is what we explained in our post close trading update in July. In the appendix to this presentation, there are some more slides on the reported results, including details of the exceptional items and adjustments, being mainly the purchase price allocation and amortization, integration costs and The U. S. Termination fees already disclosed. What we will cover in more detail today is that the first half is not reflective of all the actions we've taken to ensure our performance in H2 and beyond is much stronger. I'll talk a bit more about this after covering our cash flow. Turning to Slide six, our cash flow. Net cash, excluding customer balances, dropped by £12,000,000 in the half, resulting in net debt of £1,730,000,000 Given the phasing of our marketing investment and cost savings, our adjusted EBITDA on an LTM basis reduced from $3.00 £8,000,000 at the end of December to £268,000,000 at the end of June twenty twenty four.

6:46 This means that leverage increased from 5.6 times to 6.4 times. Alongside this drop in adjusted EBITDA, you can see we paid out over £50,000,000 for exceptional costs in the first half, which is driving a small cash outflow. This includes significant items like costs to exit our US B2C business, which will deliver clear and high returns in future periods. We expect this increase in leverage to be temporary, and expect leverage at the end of twenty twenty four to be much closer to where we began the year. Looking forward, we plan for rapid deleveraging to our 2026 target of below 3.5 times. It is important to note that despite profits being below our plan, the business remains highly cash generative, with almost £79,000,000 of underlying business free cash flow in the period.

7:38 We also have really strong liquidity, with nearly £300,000,000 of total liquidity at the end of June. Turning to Slide seven. I'd like to provide some more details on the improvement in profitability that we expect in the second half. As Per already said, the actions we've taken have driven an improvement in our trading. We are pleased with the improving momentum in our revenue run rate. This chart walks through the main bridging items from half one adjusted EBITDA of £116,000,000 to our half two guidance of £185,000,000 to £195,000,000 Marketing phasing will add £35,000,000 to £40,000,000 We significantly increased our marketing in the first half, and are seeing some of the benefits of this in our improved run rates into H2.

8:26 The lower marketing spend in H2 will be a marketing ratio of around 18% to 19% of online revenues, which we see as a more normal rate than the elevated 25% in half one. The phasing of employment costs will add 5,000,000 to 10,000,000 to half two, given the full half impact of actions taken during the first half to improve our operating model. Revenue initiatives will add another around £15,000,000 to EBITDA. We have a deep pipeline of initiatives here, some of which Per talked through. We have completely changed the way the finance function supports the business in tracking and driving the business. Each of these initiatives is tracked individually, enabling the business to take corrective actions to ensure we are hitting our financial plans.

9:14 An example of a new initiative which is driving improved revenue and profitability is our recently launched upgraded BetBuilder. This has made it much easier for our customers to place combination BetBuilder bets. With a high quality product in place, we then skewed the marketing and promotions towards this in the Euros and into the start of the new football season. This new product drives both a revenue and profit uplift on its own, as more players can place the bets they like, and also increases the efficiency of our marketing and bonuses, as we are able to promote a really attractive product. As you know, we are in the process of selling and closing our US B2C business, and this will add a further £4,000,000 to EBITDA in the second half.

10:02 Finally, we've taken a range of additional cost initiatives, which will save a further £10,000,000 in H2. One of the key learnings in my first six months in the role is that we have loads to go for on the cost side. We continue to see a wide range of manual processes, duplication and inefficiency in our cost base. This ongoing work will lead to a structurally lower cost base, with further annualisation impact into 2025, giving us confidence in our 2025 plans. Finally, on Slide eight, a quick update on my financial priorities that I outlined at our full year results. Firstly, we are driving and embedding a cultural shift in the business. This is all about a shift in mindset to deliver value creation.

10:51 I have quickly restructured the finance team to set a structure that will support greater rigor of our plans and provide greater support to our decision makers to drive high returns. We built rigorous daily, weekly and monthly tracking and increased our re forecasting cycle to monthly to ensure we can be more accurate and confident with our forecasts. Each element of our plan is tracked and monitored to ensure we are delivering. This enables the business to take corrective actions if we are off course, and to quickly scale up investments where we are over delivering. Secondly, resource allocation is fundamental to creating value. We are in the process of exiting The US B2C business and have made structural changes in our approach to marketing and product investments to drive higher returns through pursuing our strategy.

11:42 Thirdly, we are making strong progress with our efficiency and operating leverage. We will continue to take costs out of the business, following our strategy to deliver a more targeted business, investing in the right products and brands in the right countries. We are building a more scalable, more efficient business, powered by intelligent automation and AI. I'll now hand back to Per to provide some more details on how we have set the business up for success in H2 of this year and beyond. Thanks a lot for that, Sean. So turning to slide 10, this is a reminder of our commitment to shareholders to create value. As we outlined today and in our trading update last month, we are not happy with the financial performance in the first half.

12:29 The scale of transformation is significant and it is needed for us to deliver a short term trading turnaround, as well as ensuring long term profitable growth and value creation. Our value creation plan does not change. And with the structural improvements we have made in the business, I'm even more confident about our plan to create shareholder value. Turning to slide 11 with a reminder of our strategy. This is a complete reset of the business, built around a clear and compelling strategy. We know where to invest in our core markets and we know how to invest and how to win customers in these markets.

13:12 During the first half, we have made strong progress with our strategy, building an almost completely new team, new models of branding and ways of working, as well as our clear strategic framework to guide success and value creation of the business. There is of course a lot still to do and I will not rest until this business is performing the way it should and can do, but I am really pleased with the progress we have made here to set us up for profitable growth in H2 twenty twenty four and beyond. Turning to slide 12, and just to reiterate and expand on some of the changes we have been making to transform the business.

13:58 Our first competitive advantage we are investing behind is operational excellence driven by data and automation. We have hired a world class team for data, intelligent automation and artificial intelligence, who are already driving a step change in our capabilities. We have become much more sophisticated when it comes to play segmentation, enabling us to provide better products and promotions to our core customers who value them most, driving retention, loyalty and higher player values.

14:34 These improvements are enabling us to do more with less, delivering 30,000,000 of cost savings, while providing better outcomes for our customers. We are already seeing tangible short term benefits here to our run rates, with an improvement in, for example, our bonus ratio. Our second competitive advantage being invested into is our winning culture. We have rebranded the group as EVOKE, a critical step to bring together our business into one company, focused on execution of our strategy. We have an almost entirely new executive team bringing in leading talent and experience from the inside the sector and outside, as well as strengthen the wider leadership community.

15:22 We have radically restructured the operating model, removing layers and broadening the spans of control, getting our people across the business closer to the customer and speeding up decision making. Our third competitive advantage we are investing behind is our leading distinct brands. We have relaunched Mr Green as the most distinctive Castina brand in the market. We have repositioned William Hill with successful campaigns based around, for example, top price guarantee in racing and top prices on ACK and football, and gradually shifting our marketing focus from pure promotions towards highlighting our product excellence.

16:06 Our investment in our competitive advantages and value creation is underpinned by our six strategic initiatives. And these initiatives are fundamental to creating a leaner, more profitable business, with investments in capabilities that are enabling us to win customer and win in our target markets. Put simply, we have taken decisive actions to ensure we hit our plans for the second half, and we are making significant structural improvements in our business to ensure we create a better, more profitable business for the longer term. Turning to slide 13, and a bit more detail on our H2 execution plan. We will deliver 5% to 9% of revenue growth in H2 twenty twenty four.

16:57 As Sean outlined, we are already seeing the benefits of our short term changes, which include the benefit of new product launches, like BetBuilder, with further new product launches and UX enhancements coming in the next few weeks.

17:12 This is enabling us to be laser focused with our personalized promotions, and more effective with our marketing as we highlight the benefits of our leading products, rather than just giving free bets, for example our Betting Get Off from Betbill at the Euros. These capabilities will grow substantially in the longer term, as we roll out our automated customer lifecycle management model, which is already well under development, and will lead to a step change in retention and monetization as we deliver our strategy to give customers a personalized experience delivered by our clear premium brands. Stronger revenues will be magnified for profitability with our more efficient cost base.

17:57 The second half of this year will benefit from the full $30,000,000 cost saving plan that we announced at the start of this year. The benefits of reducing losses from our US B2C exit and a lower marketing ratio with our more targeted marketing.

18:14 Over the long term, there is substantial upside potential for our profitability, as we capture the benefits of our strategic initiatives. EVOKE is becoming a business with leading scalable technology, powered by AI and intelligent automation, with a winning organization operating with pace, decisiveness and urgency to deliver improving profit margins. And finally, deleveraging will enhance our return on equity. As Sean mentioned, while leverage is temporarily elevated in the first half, we see a clear route to rapid deleveraging, which will deliver high shareholder returns. So thank you for your continued support, and we are now ready to take your questions.

19:03 Thank you very much for your presentation. We have received a number of questions, both pre submitted and throughout today's meeting. I And just want to start the q and a session off with this one here, which reads as follows. Do you think you have the shop layouts, decoration, and footfall to get the gross win per machine per week levels of your high street competitors once new machines in situ by Easter q one twenty five? Yeah, and to start with, I mean, it's an absolute privilege to be CEO of a company with such a strong brand like William Hill, having the omnichannel strategy and the proposition. Very proud about the retail outlets that we have and in particular our great colleagues that on a daily basis interacting with our customers.

19:46 We have an outstanding retail channel, but there are clearly improvement opportunities, of course. And one of them is that we have called out a few times now is the opportunity to close the gap versus competition when it comes to the retail gaming cabinets. We have today retail cabinets that are more than ten years old, which means that there is a substantial opportunity to improve in a responsible way, the gross win per machine per week related to the gaming. We are talking about now run rate about £750 per machine and week in gross win. And we see here the benchmark being £1,000 so there is a substantial opportunity to improve. So do I believe that we have the

20:41 right proposition in terms of retail with our great colleagues and a super strong brand as William Hill? Absolutely so. But also humbled to say that we have improvements to be made and which we are focusing on. One of those things is that we are having a complete new leadership when it comes to the retail business. Thank you very much. Turning to the next question. Are you confident that the increase in marketing will garner greater investment, customer acquisition and retention, noting more branding and less promotions, I. E, a better marketing to revenue ratio? So we invested 30,000,000 to £35,000,000 in marketing in the first half, and it'd be fair to say that didn't get the returns that we were expecting. Just in terms of marketing ratio, that was 25% of online revenue.

21:29 In the second half, we won't be spending that additional investment. And that will bring us back to a ratio of about 19% to online revenue, which is much more normal across the industry. And what's important about the second half, and Per talks a lot about this, is our growth in the second half is very much product led and initiative led and not so much marketing led. And so yes, I am confident that we've got the firepower to drive the revenue growth in the second half. Thanks very much. How do you intend to reward long term investors?

22:08 So, one of the key reasons for me to join and have this opportunity to join this fantastic company is to bring it to where it belongs in the top and actually deliver value, deliver value for the shareholders. And absolutely focused on to get I mean, with the whole team I have, the whole organization, is delivering on the value creation plan, where we're absolutely obsessed about, you know, driving profitable and sustainable revenue growth, both in the short term and also through restructuring improvements, and also then expand the profit margin through greater efficiency and operating leverage, and obviously by de leveraging the business through disciplined capital allocation. So our focus is all about now executing the value creation plan and in particular now the age to twenty twenty four and that and by so delivering value to the shareholders.

23:04 Thank you Per. The next question, is there scope to make any disposals to lighten leverage or is it management's view that retaining full ownership is the optimum route presently? So you'll be aware of The US disposal which was absolutely in line with the value creation plan. We do keep the optimized markets under review to see whether a disposal would make sense or not. Not only disposal, about whether we could move to a brand licensing type arrangement, which could continue to drive revenue from

23:41 those countries. At the moment, I don't see particularly a line of sight to disposals. And in terms of the leverage, I mean, we've got a clear plan, which takes us to sub 3.5 by the end of twenty twenty six.

23:58 Could you elaborate on your approach to monetizing non core assets and how this strategy aligns with your overall goal of driving shareholder value? Sure, I mean to be honest with you, largely the answer to that question is exactly the same as the answer to the previous question, so I think we've already covered that. No problem at all, we'll move on. With the results out now, does the management team intend to better align with investors by making share purchases?

24:26 So if I take that one, I mean, to start with, personally and my team organization are very much believing ourselves and in the value creation plan. And what will be announced later on, I believe, is that I have increased my own shareholding today after the announcement of the results. So I can reassure you that there is absolutely clear alignment in terms of having a skin in the game and being part of this fantastic value creation journey. Thank you. The next question here is two parts. The first part, do you think that The UK retail sector is expecting growth? I know that there are areas that you would like to improve, but it is notable that your listed peers also saw their UK retail revenues fall year on year. And the second question is when did you put in place the £5 max stake on slots in the William Hill app?

25:22 So I think I've touched upon that also when it comes to our retail channel. We are exceptionally proud of the William Hill retail presence. As highlighted in the question that, you know, we do see that across the sector, the retail channel in terms of top line is under pressure. We see that also across the high street from a macro perspective. Speaking on behalf of William Hill, where retail is a fundamental part of our go to market strategy from an omnichannel perspective,

25:55 you know, we have a very clear plan for how to go from a stable proposition to also then inject further revenue growth opportunities, talking about the retail gaming cabinets in terms of how we're going to improve the sports betting offering within the four walls in each shop, and on top of that the upgraded retail commercial leadership that we do have in place now. And that will all contribute to the guidance and commitment we have, about 5% to 9% overall growth going forward. When it comes to the second question, that when we put in place the £5 max stake on slots on the William Hill app, but I'm talking about end of twenty twenty two when that was introduced.

26:45 Thanks very much. Next question, how do you view your position relative to competitors in your core markets, especially in terms of brand strength, product offerings and market share? So let's first talk about the international core markets outside UK and Ireland. And here we see that when we look at Italy, when we look at Denmark and we look at Spain, we are outgrowing the market, are taking share, which is completely based upon, you know, the customer value proposition and the strong brands we have in those markets.

27:18 So very, very encouraged to see the progress we have with the swift and decisive actions we have taken for short term turnaround. When it comes to our fourth core market being The UK, Ireland, I think we have been very clear that when it comes to the growth plan going forward, it's of immense importance here that we continue to strengthen the customer value proposition in terms of the William Hale brand in The UK. And this is coming back to once again, you know, the product proposition with some fantastic upgrades on our BetBuilder products, when it comes to the way we are promoting our great products, also to which customer cohort we are targeting.

28:05 So what we see here is that, in the short term, we are leveraging the great assets we have at this point in time. But in addition to that, we invest into the capability where we will further then improve their positioning versus our competition. I'm talking about here the customer high cycle management that they are investing behind. We are talking about here that the new customer engagement platform that will take us from 3,000 CRM activities to potentially 30,000 on a weekly basis. We are talking about here new product launches coming in the second half of this year, including improvements when it comes to the POSIT UX and further products around the corner, in terms of, for example, the Super Sub and further improvements of the Bet Builder.

28:58 So I would say that in some areas in The UK, have a gap to address, and we have mentioned that being the retail gaming cabinets. We have a very clear plan starting Q4 this year. We have, you know, best in class retail cabinets being launched in Q4, landing also in Q1 next year. Thank you very much. Next question is really around M and A and asked what's your view on future M and A, and is it part of your growth strategy? So we see obviously in news, anything from rumors and facts about what's going on in the sector, and I think we all know that for years, there has been a development and evolution towards further consolidation of the sector.

29:47 We foresee that to continue. When it comes to our focus at EVOKE, it's absolutely clear that we are laser focused on our value creation plan, and that is what we are focused on. We are not having any plans for any transformation and M and A events. What we do seek though, on a continuous basis, is that where we have the opportunity when it comes to capital light, high impact M and Apartnership, like what we see for example, 88 Africa, that we will continue to pursue. Perfect, thank you very much. I've got a question here, which asks, there have been many false storms for the shares, but does the management sense that we are finally at an inflection point for the business?

30:36 Look, it's not really our job to predict where the share prices are going to go. What I can talk about is the performance of the business. And I think that breaks down into two parts. In the short term, we're foreseeing and forecasting 5% to 9% growth in the second half, driven by a long list of tactical product launches and other things, will drive revenue and also get the operational gearing that we're looking for. And then towards the end of the half or the back end of Q4, the strategic initiatives that we've been working on to transform the business over the longer term start landing. And that will continue to drive both the top line and the margin of the business into the future. And it doesn't stop there. It goes beyond 2026 when one platform lands. Once we're into one platform, I'd expect further efficiencies and even better EBITDA margins.

31:35 So inflection point of shares, don't know. I'm certainly confident that we've seen a start and a good traction of a continued growth rate in the top line and the continued growth of margin into the future. Thank you. That's great. The next question here, can you please provide further color on how you can achieve new cabinet rollout without additional CapEx spend? Sure. They're leased. Perfect, thank you very much. And the final question we've got at the moment is, it looks like average online sports staking per user has been sequentially falling in The UK, what has been driving this? Look, I think that it interesting to see the market share stats come out from the regulator.

32:26 And I think we are performing okay in gaming and probably slightly less well in sports. I think of the initiatives that Per talked through, pretty well every single one of them either targets sports staking, sports revenue, or it targets overall improvement in customer ARPU. And so we are very focused on improving sports going forward, and it's one of the key parts of our strategy. Okay. So if no further questions, I just would like to thank everyone for joining the call. We are, as you know, undertaking a total transformation and reset of the business.

33:14 So while the first half financial results are not where we want them to be, I've been really pleased with the improvements we are seeing in the overall strength of the business. As we said, we have started Q3 well with 5% to 9% growth, And I look forward to telling you more about the quarter with our Q3 update in October. So once again, thanks so much for your ongoing support, and we're always going to be available to answer more questions as we get on with the work on delivering our value creation plan. So thank you so much. Thank you very much, Per, and thank you to the team for updating investors today. Could I please ask investors not to close the session as you now be automatically redirected to provide your feedback in order the management team can better understand your views and expectations.

34:01 May take a few moments to complete, but I'm sure it'll be greatly valued by the company. On behalf of the management team of EVOKE PLC, we'd like to thank you for attending today's presentation, and good afternoon to you all.