evoke has stated that its online revenue has returned to growth in the second quarter of 2024, but the 888, William Hill and Mr Green operator is currently behind on its financial plan.
Commenting on the results, CEO Per Widerström reflected on recent changes to the business, but noted that it will “take time” to see the enhanced “operational efficiency, leading to a bigger, more profitable and more cash generative business”.
In addition, Widerström stated that while the first half financials are behind its plan, the “underlying health of the business is getting stronger” and that the operational progress made gives him “increased confidence” in the operator delivering on its value creation plan.
evoke describes revenue as ‘broadly stable’
Publishing its H1 2024 trading update, evoke declared a Q2 revenue of approximately £431m, which is a slight decrease in comparison to the previous year (Q2 2023: £436m). Q2’s revenue was also in line with the previous quarter’s figures.
The business stated that revenue is “broadly stable sequentially” and although it is behind initial plans, it is on a “positive trajectory” and is showing “encouraging lead indicators”.
For the whole of H1, evoke reported revenue of £862m, down two per cent year-over-year (H1 2023: £882m).
Adjusted EBITDA margin for H1 is expected to be around 13 to 14 per cent, which is approximately £35m to £40m behind evoke’s plan and “driven by the revenue miss vs expectations and the timing of cost saves”.
The operator noted that H2 2024 and 2025 expectations onwards are unchanged as business momentum supports significantly increased profitability.
evoke also highlighted the “successful refinancing in May 2024 to repay the Euro TLA and replace with GBP fixed rate notes, improving the debt profile by extending the maturity of £400m by two years out to 2030; improving the fixed/floating mix; and more closely aligning the debt currency mix to underlying cash generation”.
As of June 30, 2024, the operator’s cash was approximately £116m with ample total liquidity of nearly £300m including RCF.
“We are focused on mid and long-term profitable growth and value creation and during the first half we have made bold, decisive changes to improve almost every area of the business,” commented Widerström.
“We are undertaking a complete reset and transformation of the business, and the scale of change is significant but necessary. This transformation will take time but will enhance operational efficiency, leading to a bigger, more profitable and more cash-generative business in the future.”
Online growth returns
Split across its segments, UK&I online returned to growth in Q2, rising by three per cent YoY to £174m (Q2 2023: £170m), “driven by improved product and promotions” as gaming rose by six per cent. Across H1, revenue improved by one per cent YoY to £339m (H1 2023: £336m).
Sports betting was held back by “continued knock-on impacts from marketing and proposition changes in 2023”, in addition to lower-than-expected returns from Q1 marketing and promotional activity, particularly for Cheltenham. As a result, operations are currently £20m behind EBITDA plans.
evoke noted that it has addressed these issues with leadership and commercial strategy changes, with a new approach to price and promotions seeing early traction, alongside the strong launch of the new betbuilder product.
Q2 revenue from UK retail operations fell by eight per cent YoY to £128m (Q2 2023: £140m) following “challenging conditions” and “tough comparatives”, as well as “customer offering falling behind competition”. Across H1, revenue fell by eight per cent YoY to £258m (H1 2023: £279m).
Due to the fixed cost base and negative operating leverage, EBITDA is approximately £10m behind plan.
Actions are in place to address the issue including a change in leadership and a rollout of “future proof gaming machines” in Q4 2024 and Q1 2025, alongside an improved SSBT product, payments experience and sports broadcast offering.
For international operations, revenue in Q2 improved by two per cent YoY to £129m (Q2 2023: £126m), or four per cent in constant currency. evoke stated that double-digit growth in core markets of Italy, Spain and Denmark – 60 per cent of the international division – was offset by optimised markets seeing reduced revenue as the firm focuses on cash flow generation.
This includes the operator’s exit from the US market following the sale of selected US assets to Hard Rock Digital announced back in March and the conclusion of its strategic review.
Widerström noted: “Our strategy defines what good looks like and how we get there, and while no journey is ever straightforward, we have learnt a lot already so far this year as we pursue our goals.
“Whilst it is disappointing that the first half financials are behind our plan, the underlying health of the business is getting stronger, and the corrective actions we have already taken make us even more confident that our strategic approach is sound and will achieve sustainable success.”
Outlook
As previously mentioned, evoke’s expectations for the remainder of the year and FY25 have remained unchanged, as H2 revenue growth is expected to be in line with medium-term guidance of five to nine per cent, finishing between £871m and £904m.
Meanwhile, the “cost optimisation programme executed delivering planned £30m in-year savings, weighted to the second half”, with incremental benefit in H2 around £5m to £10m compared to H1.
In addition, evoke noted that its “marketing phasing always planned to be H1 weighted”, with marketing costs approximately £35m to £40m lower in H2 in comparison to H1.
The operator claimed that these factors, alongside operating leverage on expected revenue growth, mean H2 profitability should improve significantly, with adjusted EBITDA margin expected to be around 21 per cent.
In addition, no changes have been made to FY25 expectations, “including Adjusted EBITDA margin of at least 20 per cent, with unchanged medium-term targets of five to nine per cent revenue growth per year, c.100bps of Adjusted EBITDA Margin expansion per year, and leverage of below 3.5x by the end of 2026”.
“I am really pleased with the strategic progress we have made so far and I’m confident this will set us up for profitable growth in H2 2024 and beyond as we continue to invest for the mid and long-term with high conviction,” stated Widerström.
“Our plans for 2025 and beyond are unchanged and the strategic and operational progress we have made during the first half give me increased confidence about delivering our value creation plan.”