Evoke plc (EVOK) Earnings Call Transcript & Summary

Good afternoon, and welcome to the Evoke plc Full Year Results Investor Presentation. [Operator Instructions] Before we begin, we'd like to submit the following poll. I'd now like to hand you over to Per Widerstrom, CEO. Good afternoon, sir.

Good afternoon, everyone, and thanks for joining us today for our 2024 results. I am Per Widerstrom, and I'm joined today by Sean Wilkins, our CFO. So I have been CEO of Evoke now for nearly 18 months. And in today's presentation, I'm delighted to report on a strong progress we are making with our business transformation and turnaround. We start with the agenda on Slide 2. And while we already gave you the key headlines on 2024 performance and our full-year trading update in January, I'm pleased to say that our adjusted EBITDA was actually GBP 2 million ahead of the top end of our previous update. I'm delighted to report we met or exceeded our commitments from the interim results, and Sean will walk through the details of this as well as covering our current trading and outlook for the year ahead. I will then cover our strategic progress and how we're executing against the value creation plan before taking your questions. Turning to Slide 3, with a reminder of our commitment to shareholders to create value that we laid out exactly a year ago today. Firstly, driving growth. We have made great progress focusing the business towards our 5 core markets, which now make up 90% of our revenue. The business is powered by these market-leading positions, which deliver strong, sustainable and profitable growth and support our confidence in achieving our 5% to 9% revenue growth target. Secondly, we are improving profitability through efficiency gains and operating leverage. Our adjusted EBITDA margin was 22% in the second half of 2024. While we expect this to be more like 20% for FY '25, we are on a positive upward trajectory and continue to see significant long-term upside to our profitability as we build our enhanced capabilities. Thirdly, we are highly disciplined with our capital and use of cash and are committed to reducing financial leverage in the coming years, accelerate return on equity for our shareholders. Turning to Slide 4, and just before handing over to Sean to cover the financial results and this in more detail, I would like to give my personal highlights of my first full year as the CEO. Firstly, and perhaps most importantly, we returned the business to growth for the first time in 3 years. We delivered full year revenue growth of 3% with growth in the second half of 8%, consistent with our midterm target of 5% to 9%. We further improved the mix of the business during the year. The acquisition of Winner created our fifth core market in Romania. And online core markets grew 12% year-over-year. The business is powered by these market-leading positions, which will continue to underpin our strong, sustainable and profitable growth. We transformed almost every area of the business with a complete reset and transformation, bringing in new talent and laying the foundation for significantly enhanced capabilities going forward. The strategy is working, and we are pleased with our progress, but we know there is a lot more to do. We are absolutely laser-focused on execution, as we strive to deliver our upside to potential and create value. Sean will now cover the financial results.

Thanks, Per, and good afternoon, everyone. I'm Sean Wilkins, the CFO, and I've now been with the business for just over a year. As you can see on Slide 6, for the full year, our revenues were up 3% and adjusted EBITDA was up 4% to GBP 312 million. It's worth pointing out here for the eagle eye that the fiscal '23 EBITDA of GBP 300 million is GBP 8 million lower than what we reported last year due to an accounting adjustment on U.K. gaming duty, where it had been under accrued. On the face of it, you would be forgiven for thinking this was quite a pedestrian year, but the full year figures alone don't really tell the story of the radical transformation that we were undertaking during the year, a transformation that drove significantly better performance in the second half and has positioned the business for both stronger revenue growth and higher profitability in the future. Revenue in the second half was up 8% year-over-year, including 10% growth in online -- sorry, 12% growth in online with double-digit growth in Q4 across both U.K. and international online. In U.K. online, we returned the business to strong growth in the second half, and gaming for the full year was up 9%. At an EBITDA level, the significant increase in marketing in half 1 last year did not generate the desired returns, as we discussed previously. Our international business delivered fantastic operating leverage with 7% revenue growth alongside a reduction in both marketing and other operating costs, as we refined our brand marketing plans and improved efficiency. This led to an adjusted EBITDA growth of 31%. We saw the opposite effect of this in retail, where the high proportion of fixed costs meant EBITDA declined by 33%. With the new management team and improved gaming offering, we're confident the business is much better placed in 2025. In the appendix to this presentation, there were some more slides on the reported results, including details of the exceptional items and adjustments being mainly the Purchase Price Allocation amortization, integration costs and the U.S. termination fees already disclosed. Turning to Slide 7. This chart really highlights the extent of the transformation the business has been through. We are now really well positioned with 90% of our revenue coming from core markets and 96% from regulated and tax markets. Within our core markets, we have strong positions and the right brands and products to grow share, supporting our 5% to 9% revenue growth plans. The mix of revenue and quality of the business has improved significantly over the last 3 years, reflecting a few factors, which you can see in the chart. Firstly, our U.K. revenues are lower. This reflects the proactive change in brand strategy to reduce investment in low-margin business and focus on investing in profitable growth. It also reflects a mix shift within the player base to more sustainable customers, as we have implemented nearly all of the actions from the government white paper in the U.K. Secondly, there are a whole range of markets like Netherlands, Middle East and Latvia, where we have either closed, sold or totally restructured the way we operate. These markets made up 14% of the 2021 pro forma revenue and are now under 5%. Thirdly, in the rest of the world, which is a mixture of dot-com and locally licensed, we have changed the focus to drive sustainability. Finally, in our other core markets, revenues have increased by approximately GBP 100 million or 36%, reflecting our market focus and strength of our leading brands and products in these attractive markets. The net impact of all these changes is that we now have a really strong business mix with 90% of our revenue coming from our core markets, where we have market-leading positions and support our sustainable 5% to 9% revenue growth plan. Turning to Slide 8. I'm delighted to report that we've met or exceeded all of our commitments from the interim results. In August, we outlined that we were disappointed with the financial performance in the first half, but have taken bold, decisive actions to correct this and drive a stronger performance in the second half. This chart compares Half-1 2024 adjusted EBITDA to Half 2 and progress against all of the key areas that we discussed at the interim results. As you can see, we beat the top end of our guidance range with revenue growth towards the top end of the range alongside overachieving our cost savings. Turning to Slide 9. While we delivered efficiency gains in 2024, I'm pleased to say there is a lot more to go for. As Per highlighted, the central pillar of our value creation plan is to become more efficient as a business, delivering higher profit margins as we achieve sustainable revenue growth. The business already successfully achieved GBP 150 million of synergies from the combination, which offsets some of the significant regulatory and compliance headwinds I've already mentioned. Per then announced a GBP 30 million cost optimization program soon after he became CEO, which was successfully executed in Half 1 last year. In addition, as I've just laid out on the previous slide, we executed a further GBP 15 million of cost saving actions in Half 2. Not all of these will annualize, but we do expect to be able to drive GBP 15 million to GBP 25 million further savings in 2025 from further operating model refinements as well as supplier efficiencies. This drive for efficiency will continue, particularly where we see cost headwinds such as the National Insurance, the National Living Wage changes in the U.K., which are around GBP 10 million headwind this year that we have been able to absorb into our existing guidance through additional efficiencies. Turning to Slide 10 and our cash flow. Net cash, excluding customer balances, increased by GBP 19 million in the year, although we used GBP 85 million of the RCF at the end of the year, resulting in net debt increasing by GBP 30 million to GBP 1.79 billion. Cash burn for the year was around GBP 65 million, was primarily driven by exceptional costs to deliver on the transformation, coupled with the poor first half performance. You may recall at the interims, I said we expect to be broadly cash neutral over H2 and the eventual outflow of a little under GBP 30 million was primarily driven by M&A timing with the Winner acquisition not factored in at the time and the delay to the sale on U.S. D2C. On an underlying basis, we were around neutral. The leverage multiple dropped by 0.2x on a full-year basis to 5.7x, and we made strong progress from the interims with LTM leverage reducing by 1x from 6.7x over the second half. Looking into our trajectory for this year, we expect continued rapid deleverage with a multiple expected to be around 5x by year-end. As we look forward, the group had previously guided to net leverage below 3.5x by 2026. We now expect to meet this target in 2027, primarily reflecting the additional time needed to build out world-class capabilities alongside the further exceptional costs and CapEx required to execute such a significant transformation in the business. While leverage is high, the resilient business model and significant cash generation ensures we comfortably cover our debt servicing demands. We are on a clear path to delever the business and support a high return on equity. Turning to Slide 11, a quick update on my financial priorities that I outlined at our 2023 full year results. Firstly, we are driving and embedding a cultural shift in mindset to deliver value creation. We've built much better ongoing tracking and reforecasting to ensure we are delivering. This enables the business to take corrective actions if we're off course and to quickly scale up or scale down investments. Secondly, resource allocation is fundamental to creating value. We have sold businesses in noncore countries such as the U.S.A., Latvia and Colombia and are highly selective in our CapEx and M&A investments, such as our low-capital, high-impact partnership with Winner in Romania. Thirdly, we're making strong progress with our efficiency and operating leverage. As I mentioned before, we've identified further cost savings for 2025. And in parallel, we are investing in our strategic initiatives to deliver a step change in capability and productivity. Turning to Slide 12 with some comments on current trading and our outlook for the year. I am pleased to say that following a robust start to the year, we are comfortable with our annual revenue growth guidance of 5% to 9%. We're likely to be a touch below this in Q1 for a number of reasons. First, short-term impact of new customer journeys as part of the additional safer gambling measures introduced at the end of Q4 in U.K. online, but these have been mitigated with the implementation of improved product and customer experience, which will reduce the impact going forward. Second, the prior year had elevated marketing and promotional activity. Third, strong win margin in Q4 and racing cancellations in January have impacted volumes into Q1. And finally, last year had 1 extra day, which is worth 1% for the quarter. The exciting product pipeline, the improvements in retail and full implementation of the customer value proposition, or CVP, William Hill and our ever-improving capabilities around data and personalization are all driving our confidence in being in the 5% to 9% range for the full year. Importantly, though, we continue to evidence the step change in profitability and expect the Q1 adjusted EBITDA to be GBP 18 million to GBP 28 million higher than last year, with LTM EBITDA expected to increase to around GBP 330 million to GBP 340 million at the end of Q1 '25. This should step up again through the year as we deliver our plans with an expected margin of at least 20%, which supports an expected significant step down in leverage this year. I'll now hand back to Per to provide some details on our strategic progress last year and the plans for this year.

Thanks a lot for that, Sean. So turning to Slide 14 with a quick reminder of how we are going to deliver the value creation plan and our strategy to execute on this. The detailed strategic framework is in the appendix, but this slide summarizes what it means across the key areas of what we will do and how we will do it and where we will do it. Over the following slides, I will bring each of these to life a bit more, but I just want to start by reiterating again, this has been a complete reset of the business. We have built a clear and compelling strategy. We have built an almost completely new team who are highly motivated and incentivized to deliver this plan. We have a new modus operandi and ways of working across the business. We know where to invest in our core markets, and we know how to invest and how to win customers in these markets. The strategy is working. And while there is, of course, a lot still to do, we will not rest until this business is performing the way it should and can do, but I'm really pleased with the progress we have made here. Turning to Slide 15. And while Sean has covered a lot of this already, I wanted to start with the evidence of what we are doing. I'm delighted to say that we returned the business to growth during 2024 and our strategy really has been beginning to pay off with H2 2024 delivering year-on-year revenue growth of 8% and adjusted EBITDA growth of 29%. As Sean outlined, the shape and mix of our business is very different today compared to just 3 years ago, with a significant increase in the quality and sustainability of our revenues. Our core markets enjoy leading market positions, powered by our world-class brands. These strong market positions support our plans for 5% to 9% annual revenue growth in the coming years. In terms of profitability, the decisive actions we took last year to improve performance have had a positive impact. In particular, on the cost side, and as you see here, we delivered a significant improvement in margin in the second half to levels this business has not seen for years and with a significantly higher regulated revenue mix as well. This focus on profitable growth delivered significant deleveraging in the second half. As Sean mentioned on current trading, with the last 12 months' EBITDA having improved again, we are already bringing leverage down so far in 2025, and we remain laser-focused on bringing leverage down quickly and consistently to our new target of under 3.5x by 2027. Turning to Slide 16 and to focus on the first of our competitive advantages, operational excellence, driven by data insights and automation. This slide has just a few highlights from the developments during the year. We have hired a truly world-class AI and a tenant automation team who have significant experience in delivering large-scale transformation, and we are investing in the right tools. We have had some quick wins across customer operations and trading, building on a lot of good automation work that was already happening, but there is significantly more to go for in 2025 and beyond. Early evidence of our improved use of data insights can be seen in our more efficient use of bonuses and free bets. We have become much better at segmenting our core customers, which together with improved products and customer lifecycle management, has enabled us to drive better personalization and ensure we are spending on the right customers. This has also helped drive a substantial increase in ARPU, being up 6% for the year and 27% in Q4, although Q4 clearly benefited from sporting results. Turning to Slide 17. Our second competitive advantage being invested into is a winning culture. We rebranded the group as Evoke, a critical step to bringing together our business into one company, focused on execution of our strategy. We have an almost entirely new executive team, bringing in leading talent experience from inside the sector and outside as well as strengthening the wider leadership community. We have radically restructured and reshaped the operating model, removing layers and broadening spans of controls, getting our people across the business closer to the customer and speeding up decision-making. We make sure we support the colleagues through such a large transformation, including significantly expanding the well-being support we offer, including funded sessions with coaches across a wide range of topics. We still have more to do in this area, but it's pleasing to see the improvements in employee NPS across the second half of the year from plus 4 to plus 10, as we really embed the new strategy. Turning to Slide 18. Our third competitive advantage we are investing behind is our leading distinct brands. We have relaunched Mr Green as the most distinctive casino brand in the market. We are repositioning William Hill and have just launched our new visual identity in March ahead of the Cheltenham festival. And we have begun the detail work on 888 as well, which should then launch in 2025. All of this work is designed to develop and deliver a clear and consistent customer value proposition, giving customers a reason to choose us and to stay as a loyal customer. We are becoming much more sophisticated in our segmentation, and we are striving for infinite personalization to become the brand of choice in all our core markets. On the product side, we fundamentally overhaul the entire product and tech function and development pipeline. This has enabled improved speed to market with new features with some particular highlights for the year being the new Bet Builder product and Impact Sub feature, both of which are resonating really well with customers. And we are the only operator offering Impact Sub features in retail. Also in retail, we began the rollout of our new gaming cabinets with 5,000 installs now complete and positive early signs with accelerating growth performance and market share gains in Q1. We continue to progress the move towards a single platform with William Hill's trading engine now integrated into the 888 platform. All Mr Green markets now migrated onto the 888 platform, and Section 8 games rolled out onto William Hill and Mr Green. We have loads of exciting products to come in 2025 as well, alongside the continued drive to simplify UX and improve ease of use. I hope you were all using the William Hill app at Cheltenham. And if you were, you will have seen our new improved horse racing pages that's just another example of this. Turning to Slide 19. Alongside our investments in capabilities and competitive advantages, we have been highly disciplined about investing where we can deliver best returns for our shareholders, which is our 5 core markets, the U.K., Italy, Spain, Romania and Denmark. As you can see on the slide, we have really strong positions here. And in the markets where we are outside the podium positions, we are really close to the top 3 position other than in Italy, where there is a bigger gap given the significant consolidation that has happened there in recent years. However, we are the top 3 online casino operator in Italy. So these are all large, attractive and growing markets with high barriers to entry. Our strong positions here and our clear market focus help us to deliver our 5% to 9% revenue growth target and builds us a more focused and more profitable business. Finally, on Slide 20 with our conclusions before taking your questions, 2024 was a full transformation and reset. We started to see the impact of this with the business return to growth after 2 years of decline in revenue. As well as improving short-term trading trends, we have been investing heavily behind our strategy, focusing our resource on our core markets and investing in our long-term capabilities. We are well placed to deliver our commitments with 5% to 9% revenue growth and at least a 20% EBITDA margin in 2025, leading to material deleveraging. Finally, and just before we hand over to Q&A, I wanted to take a moment to say that on behalf of the Board and the whole team at Evoke, I would like to thank Vaughan Lewis, Chief Strategy Officer, who will leave the business in the summer of 2025, following a smooth transition of responsibilities. Vaughan has played a very important role in many aspects of the business over the past 4 years, including helping to deliver the transformational acquisition of William Hill, assuming the role of interim CFO prior to Sean's arrival, playing a critical role in developing our value creation plan and delivered value-added M&A such as the acquisition of Winner and the development of the group's 888 Africa joint venture. With the business returning to growth and the group's value creation plan in place, Vaughan has decided that time is right to seek new opportunities, and we wish him every success in the future. With that, I would say thank you for your continued support, and we're now ready to take your questions.

[Operator Instructions] I'd like to remind you the recording of the presentation along with a copy of the slides and the published Q&A can be accessed via investor dashboard. Guys, as you can see, we've had a number of questions throughout today's presentation, and thank you for everyone for submitting those. Perhaps I can start with the first one here. Please, could you give more color about where the incremental EBITDA growth year-on-year in Q1 2025 has come from? Is this from U.K. online, i.e., lower marketing spend means lower revenue growth with better EBITDA or other divisions?

Thanks for that question. Yes, the majority of the EBITDA growth does come from U.K. online -- I mean, notwithstanding that our international business is growing fast and we're seeing some EBITDA drop-through on there. I think we've been fairly clear publicly about the fact that we had elevated marketing in Q1 last year and that, that elevated marketing probably didn't get the return on investment that we were expecting to get, but that, that we haven't spent that in Q1 this year. And so as a result of not spending that this year -- sorry, we're just getting some echo, which we're sorting out this end. As a result of not spending that this year, we've seen significant improvement in EBITDA. And clearly, over the course of 2024, we built our capabilities in a number of areas, and we improved the efficiency of the business in a number of areas, and all of that's reflected into the Q1 improvement in EBITDA over Q1 last year.

I always thought reduction of debt was a priority, yet net debt has increased this year. What actions are you taking to reduce it?

So we've talked about the fact that we've got further efficiencies coming in this year, which I talked about in the presentation just now. I mean, from a more sort of generic high-level perspective, I'm also expecting to be cash generative this year. And so all of the actions that we're taking this year in terms of growth, management of the P&L, efficiency in the P&L and then below EBITDA as well, will all contribute to reduction of debt over the next year and then coming years after that.

A question here about your gaming machines. Your new gaming machine installation program seems to have been completed ahead of schedule, but doubts about the attractiveness of your real estate at the interims. Have you now realized that many of your shops require a refurb to keep up with both Entain and U.K. brands?

So, Mark, thanks for that question. It's an excellent question. And just to set a bit of a context, I mean, personally, very encouraged with what I'm seeing happening now when it comes to the retail estate and the plans we have ahead of us. To start with, from September, we have a new leadership of William Hill Retail, a new Managing Director that very early on identified some great improvement opportunities and immediately actioned some of them with lots more in the pipeline. It is, as you state there, Mark, it's all about becoming competitive and attractive again. It's clear that over the years, William Hill in retail have fallen behind, both when it comes to the gaming machines and in-store experience. So here, I mean, we are planning significant improvements when it comes to offering in 2025. That is from a customer perspective, increased digitalization. When it comes to our SSBTs or self-service betting terminals, we expect to see an improved customer experience as a front end. We will introduce additional TV content, and as also mentioned by Mark is that, beginning a store refurbishment program in selected areas. Machine rollout completed by mid-March, the 5,000 in-stores completed just before Cheltenham. We've been very pleased with the initial customer response to our new cabinets, and we see the revenue impact accordingly. And as mentioned, we are now seeing that we are taking share in the gaming segment in retail.

Next question we've got here. When do you expect to be paying a dividend?

So our financial policy is that we'll pay a dividend when we get sub-3x leverage. We've updated guidance today to say that we'll be sub-3.5x by the end of '27. So it will be sometime after the end of '27.

Question here from [ Nigel ]. You mentioned shareholder value. But at the moment, the share price is down 30% from when you joined as CEO. What do you plan to do about this? You can keep mentioning EBITDA; however, there seems to be no reduction in debt, actually increased last year. I know you touched on the debt already, but over to you, please.

Yes. Thanks for that, [ Nigel ]. I mean being a shareholder myself, I'm absolutely obsessed about how the share price will evolve over time, absolutely so. To make the long story short, we are absolutely all over the value creation plan. It's all about making sure we execute on the value creation plan. And once again, what that means is that drive profitable and sustainable revenue growth is about improving the profitability and efficiency through operating leverage and, of course, as well as the deleveraging through the disciplined capital allocation. So I cannot control the share price, obviously. But I can -- what I can say is that we are all obsessed and focused on delivering upon our value creation plan that are addressing the underlying elements that should drive the equity value.

And just coming back to the last question here, again, just touching on that share price really, but thoughts on why the markets crashed the share price up to 20% today?

Look, we think about operating the business. We don't necessarily think about share price. It's kind of up to you guys what the share price is. I think that there's been some reaction to the fact that Q1 growth is slightly below our 5% to 9% target. I've been really, really clear that the expectation for the full year is that we get back to the 5% to 9%. And then I think that there's been some reaction to cash generation, but equally -- I've been equally clear that I expect the business to be cash generating over 2025 to the tune of GBP 20 million to GBP 30 million cash generation, but plus opportunities on working capital, there's no real working capital benefit in there. So I think they're probably the 2 things from the number of shareholder meetings that we've had today, that's been the feedback. But we are absolutely addressing those 2 things, both in the way that Per outlined in terms of the operating of the business, but the way I've outlined in terms of what I'm expecting for 2025.

Fantastic. That concludes the questions. Thanks for answering all those questions from investors. And, of course, any further questions that do come through, the company will have the ability to respond to those, and we publish those responses on the Investor Meet Company platform. Just before redirecting investors to provide you with their feedback, particularly important to you and the team, could I just ask you for a few closing comments, please?

Yes, absolutely. So, once again, I'd just like to thank everyone, I mean, for your questions, those who have taken part on this call. I'm just reiterating that 2024 was a transformation year as we launched our strategy and the value creation plan, and we are making great progress against it. I'm absolutely super excited when it comes to what are we doing in 2025 and beyond. And I look forward to keeping you updated on the progress throughout the year. So once again, I would like to thank you for your continued interest, and I wish you all a fantastic day. Thank you so much.

Fantastic. Thank you very much indeed for updating investors today. Can I please ask investors not to close this session, to be automatically redirected to provide your feedback in order the team can better understand your views and expectations? This will only take a few moments to complete, and it's greatly valued by the company. On behalf of the management team of Evoke plc, I would like to thank you very much for attending today's presentation. That concludes today's session, and good afternoon to you all.