Evoke plc (EVOK) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen, and welcome to the 888 Holdings plc Full Year Results Investor Presentation. [Operator Instructions] Before we begin, we'd like to submit the following poll. And as usual, I'm sure the company would be most grateful for your participation. I'd now like to hand over to the management team from 888 Holdings. Per, Sean, good afternoon.

Thanks so much, Mark, and good afternoon, everyone, and thanks for joining us today for our 2023 full year results. I am Per Widerström, and I joined as CEO of this great business in October last year. And today, it gives me huge pleasure to tell you about the significant progress we have made since then and how excited I am about our value creation plan over the coming years. And I wanted to start by saying that this is the beginning of a new chapter in the history of this business. We are resetting the business and we are embarking on the transformation journey to unlock our full potential. And we still process the same great attributes you already know about. And we operate in fantastic markets and enjoy leading positions in a growing total addressable market with high and rising barriers to entry. I mean we do have the key ingredients for success, namely robust proprietary technology and some of the strongest betting and gaming brands in the world. However, it was my incoming belief that this business was not performing anywhere near the level it could and should. And that's the reason I took this job. I mean we have a fantastic opportunity ahead of us, but we must make bold changes to ensure we reach our full potential. Before and after I started, I took the time to visit nearly all of our offices, and I met the many colleagues across various departments. It was clear that there was a burning hunger for change, particularly in the terms of our ways of working due to often unclear roles and responsibilities. It was also clear to me that we needed to strengthen our group executive team. This is a first-class people who know what world class look like and have the deep understanding and experience how to get them. It was also a clear message from all the colleagues about the need to become a one company with a clear united strategy mission and vision. Our new strategy and value creation plan is all about defining what success looks like and how to get there. And we are taking these key ingredients for success and building a robust execution plan based on key value creation drivers. We now have the right team in place and are building the capabilities to maximize the opportunities that these foundations give us. This is a new plan. It will be delivered by a new team absolutely obsessed about value creation, and we will have a new corporate identity and name. Turning to Slide 3, I would like to outline some of the immediate actions I have taken to set us on the right path. I set an ambitious 100-day plan when I began my role, and this instill a real sense of urgency for me as well as for the business. I wanted to move at the high pace and with boldness. We have quickly established an almost entirely new group executive team with outstanding scales and track record to ensure we can successfully drive execution for value creation. In a short time, we have totally reset our operating model. This new operating model will set us up for success with the removal of the application in an efficient ways of working. We now have the right spans and layers of control with clear accountability to drive value creation. It will also deliver around GBP 30 million of cost savings. We initiated a strategic review of the U.S. B2C business, and I look forward to updating you on the outcome of this as soon as we possibly can. The plan here is to free up tech and marketing resources to invest at high returns, consistent with our value creation plan and strategic focus to build sustainable market-leading positions. We have taken decisive action on the destination product and tech platform and a road map to get there, including bringing in exceptional talent to support this transition. All of this has been underpinned by the creation of our strategy with a clear strategic framework and market consideration that drives our focus on sustainable profitable growth, and these combined to underpin our value creation plan. Our new strategy will be delivered by an almost entirely new leadership team. It is a new team for a new business. We are sometimes called 888, sometimes 888 William Hill, and sometimes just William Hill. I mean these are great customer-facing brands, but we need a corporate brand that brings together everything we do and speaks to our combined brand power and shared values. We need a new company name that is memorable, translated with our ambitions and helps us to tell the value creation story for our shareholders, our colleagues and one that stands out from our competitors. On Slide 4, we have our proposed name, a new corporate identity, evoke marks the start of a new era. It's a new direction, a new sense of purpose. As evoke, we have come together to go further and faster. To make life more interesting, to evoke the light in our customers with world-class betting and gaming experiences, our new name is a clear signal of our new direction. We are embracing the strength of our past, but building on this for a much brighter future. I am incredibly excited for the future, and I have no doubt it will be a positive one. Turning to Slide 5 and an introduction to our new strategy. As evoke, we know what success looks like. This is our strategic framework, and it explains what success look like and how to get there. This is also our guiding light for what to do as well as not to do ultimately with laser focus on value creation delivery. We have a clear vision and mission. We clearly set goals. This is what success looks like for evoke, and we have a clear strategy translated into our value creation plan. I am, along with all the executive team, absolutely committed to this plan, and we look forward to telling you about our progress against this plan. I joined this business because I love betting and gaming. I mean, betting for me adds further excitement to sports events. For others, it's about having fun, discovering a new stock machiner playing poker against the friend. For others, it's about relaxation, some quite meet time to relax and enjoy. For all of us, this is about making life more interesting. This is what we will do as a business, make life more interesting for our customers. And we will do this by delighting our players with world-class betting and gaming experiences. So what do we mean by world-class betting and gaming experiences. I mean, this is delivering our customer value propositions. So while we have a wide range of amazing brands, they will all deliver these key elements and raise our standards. So it will be easy to use that competition. We will leave our brand values across all interactions, whether it is our adverts, our promotions or customer service for our products. We will offer personalized values using data insights to deliver the right products at the right time at the right point of sale and at the right price. We are moving towards a world of infinite personalization. We'll be famous for doing the right thing for our customers, no misleading offers, no confusion, just clear trust worth interactions. And to deliver this for our customers, we will invest to build 3 clear competitive advantages. And these are the key enablers that will ensure we bring in our markets. So these are, firstly, operational excellence driven by data insights and intelligent automation. I mean this allows us to build scalability to drive operating leverage and show consistent execution, deliver high-quality outcomes for customers and unlock new opportunities for efficiency. Secondly, a winning culture. Our success is driven by our people, and we are committed to fostering a culture that empowers our colleagues unleashed a full potential and contribute to our collective success. And thirdly, ensure we have leading distinct brands and products. We have an amazing head start with 3 strong brands, but we will build on this by ensuring our distinct brands and products are tuned into our customer needs, offering personalized value with sustainability embedded into every offering. In order to drive incremental value, we have initiated 6 strategic initiatives that will help instigate operational excellence into everything we do and build a foundation that is scalable and ready for step change in value creation. We are also crystal clear on where we are focused to deliver the best returns on our resources. I will touch on our strategic initiatives and market focus in more detail shortly. Turning to Slide 6. Our strategic framework provides the guiding ways for our value creation plan. Over the last few months, we have built a really powerful multiyear plan with clarity about what the success look like, where will we focus, how we will operate and how each content will create value. This chart shows this concept in graphical form in terms of how it will drive success and a focus on driving incremental value on top of the business as future run rate. I should point out that this is illustrative and conception, not the actual forecast. We know this is a highly competitive industry with significant pressure from regulatory changes, taxes and cost inflation. If we would have done nothing and continuing in that old business as usual or BAU mode, we believe that profits would have steadily declined over time. We have rapidly built a plan to address this and deliver robust growth. We have 6 strategic initiatives across the business. These are global initiatives that drive improved operations through operational excellence and create a step change in future profitability. These SIs, as we call them, are managed by the executive team and include the best people across the business. As we implement these, we will deliver significant improvements in our capabilities. And once fully effective, these SIs will be transferred to BAU. And this will dramatically enhance our BAU capabilities and also free up capacity for future SIs and future step changes in value creation. This is a model and approach that I have employed multiple times in the past, both in executive roles and as a share. It is a model that works and a model that drives value. It is a model that will deliver a step change in our capabilities and our profitability. Turning to Slide 7. I'd like to outline our commitment to shareholders to create value. Firstly, we will drive profitable and sustainable revenue growth. We are not here to take market share for the sake of it. We're not here to build an empire. This is all about driving sustainably higher profits, but it is also a commitment to grow. We cannot and we will not shrink our way to success. Secondly, we will drive improved profit margins. The plan I'm outlining today will deliver a bigger business, but also more profitable business. This is about expanding our capabilities, leading the industry in intelligent automation and we absolutely obsessive in terms of focus on operational leverage. Thirdly, we will deleverage through highly disciplined capital allocation. We will grow the business, generate a materially improved cash generation and enabling rapid deleverage. Our capital structure with elevated leverage means deleveraging magnifies the return on equity. I will now hand over to Sean Wilkins, our Group CFO, who will provide an outline of our 2023 results and what our new strategy means for our future financial targets.

Thanks, Per, and good afternoon, everyone. I'm Sean Wilkins, the CFO. I'm delighted to have joined the business in February. This is a hugely exciting time for the group as we embarked on a plan to deliver material value creation. Before we talk about the future, I'd like to outline the financial performance in 2023 on Slide 8, which has the results on a pro forma basis, including William Hill in both periods. On that basis, revenues were down 8%, impacted by regulatory and compliance headwinds and adjusted EBITDA was about flat with those pressures offsetting some positive gains from synergies. Retail revenues were GBP 16 million higher, primarily reflecting the benefit of the CapEx spent in the last 2 years, which has included a completely new retail system and over 3,000 new proprietary SSBTs going into our shops this year to both replace legacy ones and increase density. U.K. online revenues of GBP 59 million lower, reflecting both the impact of the player mix shift towards lower spending customers and the short time top line here from the removal of lower return marketing spend. International revenues are GBP 96 million lower, mainly reflecting the impact of regulatory and compliance changes, but also the refined focus of marketing in sustainable markets. Over the last 2 years, the business has absorbed an incredible amount of change with regulatory gaming tax and safer gambling changes impacting EBITDA. We are under no illusions that this financial performance has been disappointing and means that at the end of 2023, net financial leverage of 5.6x was above where we want it to be. While the financial performance has been difficult, it means the business has already absorbed a lot of external risks and has a higher quality base to build from. Our value creation plan builds on this history and will establish a foundation for profitable growth. Crucially, with the growth potential ahead of us, I know that our leverage position will soon be seen as a positive with its impact enhancing the return on equity that we will deliver in the coming years. Turning to Slide 9, I'd like to outline my key focus areas for the finance function and how we're setting up for success. Firstly, we are driving and embedding a cultural shift in the business. This is all about a shift in mindset to deliver value creation. 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 higher returns. Secondly, resource allocation is fundamental to creating value. Our strategic review of B2C in the U.S. is a clear example of how we are improving our resource allocation and making quick decisions to drive superior returns. We will only spend money where we are seeing sustainable profitable returns and investing in line with our strategy. We will scale this quickly in an agile manner, protecting the downside with rapid actions to manage profitability and where we see excess returns and performance, we will scale up to drive higher profitability. Thirdly, I'm obsessed with operating leverage. This is a business that fundamentally has high operating leverage. We can service more customers and deliver more revenue from our scalable operations. But operating leverage doesn't just happen, and I see it as one of my fundamental roles to ensure the finance team is driving this. This is about ensuring we deliver efficient growth. Finally, on Slide 10 and what does this mean in terms of our targets and value creation plan. We will deliver profitable and sustainable revenue growth of 5% to 9% per year. Improving our efficiency and driving operating leverage will add around 100 basis points to EBITDA margins every year. And finally, but importantly, this will deliver rapid deleveraging with a target to be below 3.5x by the end of 2026. With that, I'd like to hand back to Per for his closing remarks.

Thanks, Sean. So today marks a new start for our new one company evoke. I'm really excited about the value creation plan that we're laying out. I and the executive team are absolutely fully committed to this plan. Firstly, we will drive profitable and sustainable revenue growth. Secondly, we will improve our profitability and efficiency through driving operating leverage. And thirdly, we will be highly disciplined with our capital and show that this profitable growth drives the leveraging of the business, driving high return on equity. And this will be delivered by a laser focus on execution and value creation. With that, I'd like to hand over to Mark for questions.

[Operator Instructions] I'd just like to remind you that a recording of this presentation along with the copy of the slides and the published Q&A can be accessed via your Investor Meet company dashboard. Per, Sean, you've received a number of questions. So firstly, if I may, thank all the attendees today for your engagement. And perhaps if I may just start with the first question, which reads as follows: with the refined market focus on core and optimized markets, what criteria is being used to identify potential future core markets and what strategic routes are being considered for expansion?

Thank you. That's a great question. I'm going to start with this market and country archetypes, we are -- make it a bit more simple than we had before. We had 3 groups before. We are absolutely focused on our core markets as well as optimized markets. The core market is, as we have previously communicated, we want to take podium positions, and we would like to invest [indiscernible] those markets to gain further share. But we also see that in some of these markets, if we take now, for example, Italy, here, we see that the local scale is also a reason and a threshold for being a core market. The optimized markets are very much based upon our true belief in passion-drive value and to then leverage and capitalize on our scale -- and this with all focus being on driving and maximizing underlying operating cash flow. In markets where we see that we cannot do that by ourselves in terms of certain optimized markets, if that will be the case. We will always look for opportunities to monetize our underlying assets being through, for example, high impact, capital-light, brand partnerships, brand licensing. But it's fair to say here that with the strategy we have with investment into further strengthen our capabilities, we truly believe that there are optimized market as of today that we can make sure bring -- we bring them to core markets.

Let's just turn to the next question, if I may. With the GBP 150 million of cash synergies achieved in full year '23, what are the additional areas identified for cost savings? And how will these be reinvested to drive your growth?

So I think the first thing that we've actually talked quite a lot about is the fact that we are looking at the overhead, we've announced that we're going to make GBP 30 million of cost savings from the overhead and reinvest that in growth in the U.K. So that's one area that is really very well advanced and which will be delivered this year. I think the second thing is that we've got a -- one of our strategic initiatives is operations 2.0, which is all about automation, intelligent automation, AI and robotics. And we will be using that to get -- to drive further efficiencies into the future. And that, of course, will reduce overhead spend as well. It doesn't end there. We have got another initiative called the product and tech foundations, and that initiative will deliver a unified platform. Now unified platform doesn't happen anytime soon. It's something that you need to invest in. It's a multiyear program. Once we've unified the platform, actually, the level of efficiency gains that you get from that is pretty remarkable. So I would say, 3 key areas that we're driving efficiencies. And probably the thing to take out of the answer to this question is that actually, that doesn't just deliver in '24 and to '26, it delivers after that as well.

Sticking around the financials, I guess, the adjusted EBITDA margins would grow by 100 basis points a year. What would be the ultimate targeted margin? And how would those margins compare with your peers? That's from Jan.

So as it stands, we don't have an ultimate targeted margin. The point here over the course of the value creation plan is we'll take our margin that we made in '23, which is 18%, and we'll improve that by 100 basis points a year. And then I've also just said that we're expecting those gains to go beyond 2026, particularly with the implementation of a single platform to continue to increase and improve our margin then. So no particular target, just continuous improvement. Yes, I guess the other thing I'd say is, we have an intention to outperform these targets. The targets are there is a kind of a baseline, and we are looking at ways that we can improve over.

Next question is from Osman. A couple of questions from you here. The first one is if interest rates reduce this year as is hoped for, will the company benefit in 2024? Or are you fully locked into longer-term arrangements?

We are hedged on over 50% of our debt, which means that it's fixed, but there is an element of floating interest rates on which we will benefit when the base rates come down.

A couple of questions around AI. But I take Osman's question here, which is, can you expand on your AI aspirations as to how it would improve the business and customer performance?

Yes. So let me do that. I mean, a great question, and we are absolutely passionate about AI when used in the right way. So we already use AI today for things like the casino game recommendation engines. There is lots of opportunities in the future when it comes to utilizing AI in a [ challenge automation ], particularly when it comes to revenue-generating areas and what is our view here is that we are moving towards what we call infinite personalization in the customer life cycle management process as such. And here, we see some substantial opportunities to actually further drive and absolutely on the spot personalized experience for our customers. And you can imagine then when -- it's not about if, but when we have that, we will increase the stickiness, the attractiveness to stay on with our great brands to drive obviously the underlying player base as well as the underlying value for our customers. It is also clear that we have several use cases that we are working on. But for example, when it comes to how we can further optimize the trading and the risk management of our book, our sportsbook, how we can further enhance the chat and customer support. And the opportunities are absolutely endless. And if we look at the opportunity to optimize from an efficiency perspective, the underlying supply chain we have, there are clearly opportunities to drive further operating leverage. And here, we are bringing in word-class people that have done this before for years. And in essence, we are replicating some of those world-class learnings into our business. So we are not learning on the job. We are bringing in world-class people from day 1 to make sure we drive value.

Let's turn to another question around CapEx. What will CapEx be in the longer run with the investments into IT and AI, et cetera? It seems that some of the [ GBP 50 million ] will be used on catch-up IT spending. If you can give any color on that.

Sure. I'm not sure what there were GBP 50 million refers to the plan going forward will be higher than that. And I would say that that's a GBP 70 million to GBP 80 million is what we will spend on an annual basis going forward. And you're quite right that there will be some aspects of that, which is AI and so on, but the principle of that is in the platform and in product and tech.

One of the pre-submitted questions that we had was around your consideration really as to whether you would consider a share issue to reduce your debt and interest costs. I don't know if there's anything that you can add to that?

The value creation plan is clear. And over the course of the value creation plan, we expect to bring leverage from 5.6x down to less than 3.5x. To do that, we don't have an equity raise in there, so it's not in the current plan.

Pre the William Hill acquisition, are the original 888 businesses trading profitably and generated cash in line with those expectations that you had?

I'm not sure I understand that question.

Let me just repeat it. Osman, maybe you can just rephrase the question, if you'd be so kind, and then I'll pose to you at the end. Let's just turn to a very quick question from Andrew then. With the rebranding to evoke plc, what specific initiatives are planned to ensure that the new corporate identity strengthens your position?

I mean, a great question. I mean, as been out in the beginning of the call is that evoke marks a new era, it marks a new future. And ultimately, it's not about the name. It's not about the logo. It's about the substance, about the core of what stands behind evoke as a corporate identity. And in order to strengthen the position of us as a company, you can imagine that in a situation, I mentioned that when I started, it was a clear call-out for the employees that we need to become one company, one company with a clear common purpose, with a clear common vision, with a clear strategy, focus to drive value. Evoke means that we are coming together as one new company. And that, by itself, is hugely important to strengthen the company, their performance and also to be able to retain and attract the best people in the sector. So obviously, it should be noted that it is a corporate brand, very distinct from our customer brands. But this one new company evoke is a starting point for a great future prospect and value creation.

Obviously, we've got the conflicts in the Middle East and Michael asks, how is the business in Israel being impacted by [indiscernible] there?

I think that is a great question. I very much appreciate that because now, we are all here to drive value, and we love business, but ultimately things like that happen, you get into what really matters is life of people. And we have about 500 colleagues in Israel. And when the horrific terrorist attack did happened in Israel, we obviously had to initiate the business continuity planning. And obviously, for the period of time, we had people that was obviously not in the office that was also called in for duties. We had our business continuity plans that were indeed activated and worked. So we were in a situation that we did not have any disruption whatsoever when it comes to the delivery to our customers.

Well, look, this is the final question we have unless other questions do come in, and thank you to everybody once again, as I said, for your engagement. But the final question as we sit here now is can you detail the road map for unifying your proprietary technology platform and really give any clues as to how this will support your growth and ultimate customer needs.

So to start with, we very much have a detailed road map in order for us to move towards this destination product and tech platform. It is a road map that is completely based upon the value creation opportunity and delivering outstanding customer experience across all our markets. So the road map is there, the clear view on what is a destination platform is also there. This should be noted though that this is a plan in terms of implementation that is about years rather than months. It is hugely important for us that in moving towards this destination platform, we have to continue delivering great products and services to our customers across the markets on the existing platform. So we cannot simply just reallocate all existing resources into the destination platform. But work has started. Work is going on, moving towards the destination platform and can't wait to have that in place as it's going to very much improve the ability for us to be speedy to the market in terms of product and services, to be more cost efficient and effective in terms of what we bring to the marketplace, and that will further ensure that we're winning in the marketplace. The effect of this, even though there'll be some effect in the value creation plan period, but the material impact will be beyond '26.

Per, Sean, as I said, that's all the questions from investors on today's call. So thank you once again to everybody. If any more questions, do make themselves available. I will obviously present those to the company post today's call. Per, Sean, I know investor feedback will be particularly important to you both, and I will shortly direct the attendees on today's call to give you their thoughts and expectations, but I wonder before doing so if I may, Per, just come back to you for a couple of closing comments.

Thank you so much, Mark. And I would like to thank everyone for joining the call. And just to say that we are only here for one reason, and that is to drive value for shareholders. And we are absolutely excited and committed when it comes to our new strategy, our value creation plan and execution plan to drive value. There is no doubt that we are having an excellent team now to make sure that we are bringing materializing this value. And I cannot wait to continue updating you how we are progressing towards the plan in future calls.

That's great, Per, Sean. Thank you on again for updating investors this afternoon. Now please ask investors not to close the session as well now automatically redirect you for the opportunity to provide your feedback in order to Per, Sean and the team can understand your views and expectations. Just want to take a few moments to complete but will be greatly valued by the company. On behalf of the management team of 888 Holdings plc, we'd like to thank you for attending today's presentation and wish you all a very pleasant afternoon.