Evoke plc (EVOK) Earnings Call Transcript & Summary

Good afternoon, and welcome to the Evoke plc Half Year Results Investor Presentation. [Operator Instructions] The company may not be in a position to answer every question received in meeting itself, however, the company can view the questions submitted today and publish responses where it's appropriate to do so. Before we begin, I'd like submit the following poll. I'd now like to hand you over to CEO, Per Widerstrom. Good afternoon to you, sir.

Thank you so much, and good afternoon, everyone, and thanks for joining us today for our H1 2025 results. I am Per Widerstrom, and I'm joined today by Sean Wilkins, our CFO. On Slide 2, you can see the running order for today's presentation. I will kick off on Slide 3 with some key highlights for the first quarter. Firstly, having returned the business to growth last year, this has continued with our fourth quarter in a row of growth. We saw improving trends through the half with Q2 growth of 5%. This is being driven by continued very strong performance in our international core markets and retail returning to growth. Secondly, we have significantly enhanced the profitability of the business. This is through direct actions like operating model changes and associated cost reductions as well as driving operating leverage by growing the top line and being more effective and efficient with our bonusing and marketing improving margins. As I've said before, we are executing both a short-term turnaround while investing in building out our longer-term capabilities. The strategy is working, and we are pleased with our progress, but we know there's a lot more to do. We're excited about H2 and remain laser-focused on execution as we strive to deliver our value creation plan. Sean will now cover the financial results.

Thanks, Per, and good afternoon, everyone. I'm delighted to be reporting a strong set of numbers for the first half, which deliver on exactly what we said we would do. On Slide 5, you can see that the total revenue for the half was a rather poetic GBP 888 million, which is up 3% as reported and 4% in constant currency. On adjusted EBITDA, we delivered GBP 166 million, which was at the higher end of the range we gave in our trading update with a fantastic 44% year-over-year. In U.K. Online, we saw revenue down 1% for the half, with Q2 showing sequential improvement over -- in both absolute terms and growth rate, but still only flat. Per will talk through in more detail, but one of the reasons for the lower revenue growth is our evolving marketing approach, particularly on the 888 brand. Adjusted EBITDA was up GBP 16 million or 37% year-over-year. In retail, the business returned to growth for Q2, which was the first quarter with all our new gaming machines rolled out. However, for the half as a whole, it was down 2%, driven by sports, which is primarily affected by market-wide issues such as the racing industry being under pressure and wider high street footfall dynamics as well as lapping the euros last year. We are addressing some competitive gaps in half 2, which along with the good performance of the gaming machines is driving our confidence in the second half. On EBITDA, we saw the impact of negative operational leverage for the half, along with higher fixed costs from National Insurance and National Living Wage changes, which offset savings that we've made. The International segment continues to perform really strongly with revenue growth of 13%, driving excellent operating leverage, which has been helped by structural cost reductions and more efficient bonusing and marketing. As a result, EBITDA more than doubled to GBP 86 million and made up over half of the overall group EBITDA for the half, highlighting the group's improved diversification. Central costs increased slightly with most of the cost reductions landing in the divisions, meaning inflation and investment in capabilities added a little bit to costs here. Turning to Slide 6. These charts focus on our adjusted EBITDA development. On the left-hand side, the bridge walks through how we went from GBP 115 million EBITDA in half 1 last year to GBP 166 million in half 1 this year. You can see the key movements here being the revenue growth, but also the gross margin improvement. This has come from online across both U.K. and international and is driven by a combination of the actions we've taken in the past year or so, since Per and I joined. We closed U.S. B2C. This means savings on market access and other fees that went through cost of sales. We've migrated more of the business onto the in-house platform, including Mr Green in all international markets as well as utilizing more of the in-house sports trading platform. These are driving revenue share savings from removing third parties. And crucially, we have talked about before, we have really optimized our use of bonuses and free bets. Marketing was GBP 12 million lower year-on-year, and we drove 4% revenue growth despite this, evidencing better returns we're getting. And finally, our cost base is GBP 4 million lower year-on-year despite NIC and living wage headwinds, along with underlying inflation. This is due to the direct actions we have taken to take out cost from the business. On the right-hand side, we show a similar bridge to what we had at this point last year, walking through how we go from GBP 166 million we delivered in half 1 to what we need to deliver to meet our guidance for the year, which remains unchanged. As you can see on the bridge, the main driver of the half-on-half improvement is the operating leverage we will get from the revenue growth, which will deliver an additional GBP 40 million to GBP 50 million worth of EBITDA. Turning to Slide 7 and our cash flow. This is our usual bridge, taking you from opening to closing cash, excluding customer balances. Just a few things worth calling out here. On tax, we received a tax refund earlier in the year, and you'll recall at full year results, I've said this is why we didn't expect much cash tax for the year as a whole. On working capital, we expect this to be positive for the year, one of the drivers being second half growth I just discussed. Exceptional costs for the half of GBP 13 million are in line with our plans. Interest was in line with the GBP 175 million to GBP 180 million guidance of the year as a whole. We repaid GBP 14 million of the RCF during the first half and other represents the ongoing amortization of the dollar term loan as well as some additional funding for 888 Africa and a GBP 9 million translation effect from movements in foreign exchange. You can see on the top right table how the growth in LTM EBITDA has delivered significant deleveraging in the period. We remain confident in our ability to drive strong future cash generation and hit our fiscal '27 target of less than 3.5x leverage. Turning to Slide 8, some comments on current trading and outlook. July is always a quiet month, and we're lapping the euro, so it's difficult to extrapolate anything from that. We have seen a good pickup in August as the football returns. And with the Premier League starting this coming weekend, we're seeing really strong engagement on our new free-to-play game. Underpinned by the continued growth in gaming, retail cabinets performing as planned and a strong product pipeline for the second half, I remain highly confident that we can achieve our plans and our guidance for the year is unchanged. With that, I'll hand back to Per.

Thanks a lot for that, Sean. So turning to Slide 10 with a quick reminder of the value creation plan and the strategy. We have already completed to transform this business, and it's a total reset. It's clear to me that the strategy is working and the financial performance has started to show this. We are truly committed to driving value for our shareholders. Turning to Slide 11. I'm delighted that we delivered a fourth quarter of growth with Q2 at 5%, delivering growth while simultaneously taking significant costs out of the business and transforming the ways of working is not easy. So I'm pleased that performance is improving across all the divisions. H1 also showed clear evidence of the step change in profitability with LTM EBITDA now at GBP 363 million, and we are laser-focused on driving further operating leverage going forward. We have also significantly reduced leverage over the last 12 months by 1.7x to now sit at 5x, driven by the EBITDA growth and net debt broadly stable. This trend will continue for a little while longer while we transform the business and remain on track for our 2027 target of below 3.5x. Turning to Slide 12 and focusing on how we are driving execution. We break this down into 3 areas where we are aiming to create long-term competitive advantage, and we made good progress against each of these in the half. On our drive for operational excellence, we have made significant progress in our Operations 2.0 strategic initiative, which is all around our AI and automation efforts. In H1, we automated a lot more customer journeys to improve the experience and reduce the need for manual interventions. These benefits will compound and drive higher margins over time. On the marketing side, we are transforming our capability, including new leadership. This is an area we continue to focus on with further improvements to come in the second half as we improve our real-time data capabilities and expand the platform integrations. In the first half, we continue to execute changes to take cost out of the business and streamline our decision-making processes. In H1, we made significant progress with the launch of the new William Hill customer value proposition. And if you use our products, you would have seen the new look and feel and color scheme, but the CVP goes far beyond simple look and feel and impacts everything we do from price and promotions to product and customer experience. We have also delivered a step change in our product capabilities with much more focus on product rollouts and improvements and ongoing focus on simplifying the UX across our products. Turning to Slide 13 and retail. I mean, this was an important half for retail as we successfully complete the rollout of 5,000 new gaming machines. You can see from the chart in the middle that now we have the first full quarter of new machines with gross win per machine per week around 15% higher than it was on the old machines. This should continue to drive growth through the second half. We are aware that we have lost a bit of ground on the sports side. This largely reflects historical underinvestment on the digital side of things. We have been addressing this through some UX improvements. And in the second half, we plan to replace a significant number of self-service betting terminals or SSBTs as well as adding some additional ones in select locations to close the density gap we have with some of our competitors. With the improvements we are making, we are confident that retail can continue its growth curve despite tough high street conditions. Retail profitability is down in the first half. Some of this reflects product mix with the new cabinets driving higher revenue share and duty charges and some reflects the additional cost headwinds from National Insurance and National Living Wage. We continue to look at the cost base where possible to drive efficiency, but the real improvements will come from top line growth where we can generate strong operating leverage on the fixed costs. Turning to Slide 14 and U.K., Ireland online. Our strategy is focused on profitable growth. And for this reason, I'm okay with the flat top line performance in the first half. We are undergoing a transformation, and we have delivered a real step change in profitability with 37% growth in EBITDA. Structural cost reductions and overhaul of the marketing function, the shift in strategic focus to customer value over volume and optimization of bonuses were key factors here. You can see on the chart on the slide that revenue growth is being driven by William Hill and particular William Hill Vegas, which is performing really strongly. Overall, for H1, William Hill was plus 3% and 888 was minus 14%. Within this, William Hill Vegas was plus 12%. So we believe as a brand, it is clearly taking market share, and this has been supported by the relaunched app and improved CX and UX. So we have done a great job with William Hill in the U.K. with the products now among the best in the market in terms of features and UX. And during the first half, we relaunched new football and horse racing pages with simpler and snicker designs. For the start of the football season, we are improving the Bet Builder and the cash out offering, supported by the launch of a fantastic new free-to-play game called Final One Standing, which mirrors the popular game format of picking one team a week to win. The season hasn't started yet, but we have seen great engagement on this already and expect well over 200,000 sign-ups by kickoff. On the sports trading side of things, we have improved underlying margins through a new pricing and risk management approach. And on the gaming side, we relaunched a new William Hill Vegas app, launched Bonus Drop Boost as an exciting daily engagement feature. The reason for the revenue decline in 888 is our focus on profitable growth. You can see this on the slide with revenue double -- down double digits, but contribution up double digits. The reality is that the returns on marketing spend for 888 simply did not stack up, and we have evolved our approach as part of the overall marketing transformation mentioned earlier. We have also recently changed the management of the brands to a separate team so that 888 can get dedicated focus that it needs to return to profitable growth, which will be supported by the launch of a new customer proposition later this year. Overall, we are excited for the potential of the U.K. business and confident in our plan to return it to profitable growth. Turning to Slide 15 and the International segment. A strong first half performance for our International division and led by our core markets, which as a group are up 22% for the half in constant currency. You can see on the slide here that all markets are growing. And while Romania benefits from the acquisition of Winner, we have also seen fantastic growth in the 888 brand there. Importantly, as well as a strong revenue growth, this was delivered profitably. And you can see on the right-hand side, we are seeing fantastic growth in contribution. And as Sean said earlier, when coupled with the cost reductions, this means EBITDA for the division more than doubled. In Italy, we are growing share led by 888 Casino, which continues to outperform local brands and even the omnichannel operators with a strong brand and the product resonates well. In Spain, we are still growing well. We have lost a little bit of overall market share due to our sports product not being up to scratch, particularly William Hill, with the 888 brand gaining share on the gaming side. We have focused on the U.K. first for product improvements, but have plans in place to address some of the gaps in Spain across the second half. In Romania, we have doubled the business both through acquiring Winner, but also really strong growth in the 888 brand. The 888 players have now been migrated onto the Winner platform, and this is expected to drive further improvement in the second half. In Denmark, Mr Green is our main brand and one of the strongest brands in the market. During Q1, it was migrated on to the 888 platform, while we saw some minor initial disruptions expected, particularly on sports, Q2 was up 26%, and the in-house platform is driving strong engagement. In the Rest of the World, we continue to optimize for profitable growth with stability of revenue and higher profitability, which is enabling the core markets to drive overall growth. Finally, on Slide 16, with our conclusions before taking your questions. So we continue to see the impact of the transformation and reset we have undertaken with the business continuous growth trajectory while significantly improving profitability. As well as improving short-term trading trends, we have been investing heavily behind our strategy, focusing our resources on our core markets and investing in our long-term capabilities. The improved Q2 momentum and our strong pipeline of product improvements and operational excellence initiatives mean we are reiterating our guidance for 5% to 9% revenue growth and at least a 20% EBITDA margin in 2025, leading to material deleveraging. So with that, I would like to say thank you for your continued support, and we're now ready to take your questions.

That's great. Thank you very much for presentation. [Operator Instructions] We have received a number of questions, so I'll start the Q&A session off with the first question here, which reads as follows. Do you have any expectancy of paying a dividend? And if so, when do you expect that will be?

Yes. Thanks for that one. The financial policy of the business is to pay dividend at below 3x leverage. And we've set out that our plan is to reduce leverage to 3.5x by the end of '27. So not in the foreseeable future, no.

Great. Thank you very much, Sean. The next question we have here. Based on the current share price, the market does not seem to believe in the turnaround story. How do you plan to address this?

Look, my view on this is I think we're showing good progress. I think half 1 has been demonstration of the progress that we've made with great profitable growth, excellent deleveraging. And so I'm reasonably pleased with the first half. How the market values the business is up to investors and what they want to buy the shares at. So that's not something which we intentionally manage. We manage the business to the expectations that we set. And my strong expectation remains that we'll hit those into the second half and into next year.

Perfect. Can you give some more detail on the recent entry to the Dutch market with ComeOn? And what is the revenue split?

Sure. So the second part of the question shows that you've seen what the economic deal is. It's a brand licensing deal with ComeOn. ComeOn got several other brands there, and this is adding to their portfolio. We're quite excited about it as we're quite excited about the brand licensing business, which is a capital-light way of leveraging the brand asset worldwide where we're not currently operating. We absolutely get the opportunity to purchase that business at a specified point in the future across all of our brand licensing deals. So this doesn't exclude us from any market. And so economically, it's an excellent thing to do. In terms of revenue split, we don't share that information.

Can you just say that in very early days, but those early signals in terms of the market entry is very positive.

Perfect. Another question here really around marketing. With marketing now product-led rather than promotion-led, have you seen any impact on customer churn rates?