William Hill's (WIMHF) CEO Philip Bowcock on Q2 2016 Results - Earnings Call Transcript

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William Hill Plc (OTC:WIMHF) Q2 2016 Earnings Conference Call August 5, 2016 4:00 AM ET


Gareth Davis - Chairman

Philip Bowcock - Interim CEO

Nicola Frampton - Director, UK Retail

Crispin Nieboer - Director of Corporate Development & Innovation


Ivor Jones - Peel Hunt

Vaughan Lewis - Morgan Stanley

Chris Stevens - UBS

Alistair Ross - Investec

Patrick Coffey - Barclays

David Jennings - Davy

James Ainley - Citigroup

Brian Devitt - Goodbody

Simon French - Cenkos

Jeffrey Harwood - Stifel

Joe Thomas - HSBC

Richard Stuber - Numis Securities

Gareth Davis

Goodness me. Full house. Let's start off with a Bingo term. Right, okay. Well, good morning everyone and thank you very much for joining us. Given recent developments with the change of Chief Executive, William Hill entering an offer period, I wanted to say a few words before I hand over to Philip -- by the way, I'm the only other person than his mother that calls him Philip -- but I'll hand over to Philip and the team for the operating and financial update.

As I'm sure you appreciate, I can't comment on the offer period, but let me talk about the CEO position. Now you'll have seen from the press coverage that the process to bring in a new CEO could, I believe, take as much as 12 months. I hope to be able to announce an appointment within two or three months, but from my recent experience, executives are increasingly being held to some or all of their notice periods. So the Board and I felt it was right to plan for it being up to a year before the new CEO is in post.

Now we're very pleased that Phil has stepped up to be the interim CEO. And without sparing his blushes, he has massively impressed the Board since he joined last November in how quickly he's come to understand the industry, in his strategic insight and, most importantly, in the leadership skills that he's demonstrated already. He's working with a team of talented people and has rapidly built good relationships with the executive team, both the longstanding executives and those who have joined us more recently.

And it's been very interesting for me, over the last week or so, to see the mood of optimism that exists across that team now. It's easy to forget at times like this what a good business William Hill really is. But we have a lot of strengths. We're facing head on the improvements we need to make and we've got some very good people in place. So the Board has every confidence that Phil and the executive team, many of whom are in the audience today, will deliver the priorities that Philip will be presenting this morning.

Now, if you have any questions for me, I'll be around after the meeting, but for now, let me hand you over to Phil to take you through the presentation. Thank you.

Philip Bowcock

Thank you, Gareth. Thank you for those kind words. Good morning everyone. As Gareth said, I'll go through the operating and financial review and then talk about our focus areas. The key message from me about trading today is that although it's been a challenging first half we remain on track to deliver our overall profit target of £260 million to £280 million for the full year. You'll already be aware that the Euros were better than expected and helped to offset the £6.4 million loss we had on Cheltenham in March, which was effectively a £13 million year-on-year delta. I'll talk a lot about online's turnaround strategy as we go through.

We're making good progress in certain areas, most notably sportsbook, but there's a lot to do in other areas as well. Retail has had a good period with both revenue and profit up 4%. Nicola and the team are certainly of the view that retail is more resilient and the results in the first half prove that. And with the SSBT rollout there's more to come.

As we said before, Australia was starting to show signs of good growth and that is continuing, giving us a 12% turnover growth. Profit was lower in H1 as gross win margins were weak and free bets were higher, but we expect a better financial performance in the second half.

The U.S. continues to grow nicely with profit up 49%. We invested about £90 million in NYX OpenBet deal in the period and we've acquired Grand Parade this week, showing our focus on controlling our technology strategy. We've also put £60 million into share buybacks during the period, but the offer period means that is currently on hold. Overall, net debt increased to £586 million or 1.7 times EBITDA and the Board has maintained the interim dividend at 4.1p per share.

Turning to the Euro 2016 tournament, we generated about £14 million more gross win than we expected. As ever, England attracted a lot of bets, clearly still without justification. The group stages were much less predictable than expected. 31% of games were drawn, as compared to about 20% in previous tournaments and the games were light on goals, with an average of 1.9 per match and only 36% of games saw both teams scoring, well below average.

In the knockout stages we had big returns from Iceland beating England, Portugal beating Wales and France beating Germany and of course nil-nil at 90 minutes in the final made for great bookmaking, if not for great viewing. In terms of the outright market, neither Portugal nor France was a popular choice, so we had a seven-figure profit on either side before a bet was laid on the final. So, a dream tournament in many ways. Let me now go through the P&Ls for the Group and then the four divisions. Group net revenue was up 1% with growth in retail offset by a decline in online. Operating costs were 6% higher, so operating profit declined 16%.

Some minor points for models, we successfully completed a seven-year, £350 million corporate bond in May to replace the one that matures in November. The dual running cost of these add about £8 million to interest costs this year, but we will benefit from lower coupon next year by about £5 million per annum. The effective tax rate on adjusted results is 15.4%, broadly in line with previous guidance. The basic adjusted EPS decline reflects the broader profit picture, however, the growth in basic EPS is skewed by the high level of exceptional items recorded in 2015. Those were around the move to the William Hill brand in Australia.

Moving on to online, within sportsbook's 1% wagering decline, the UK was down 0.7%. Italy and Spain were up 22% and other markets were down 15%. I'll talk about underlying performance shortly. You can see the gross win margin increased from the 6.3% we reported in May to 7.3% overall. So May and June were good. Staff costs were up, as we're increasing headcount in some key areas, particular UX -- that's user experience -- business intelligence, also as we enhance our data capability.

Marketing costs, at almost £70 million, are slightly H1 weighted because of the Euros. So you can see we're still prepared to invest, particularly now we're getting competitive product and UX in place again. In terms of KPIs these will move around as we shift from the old land grab model to more targeted acquisition plus retention.

Actives are down slightly. New accounts are down more, as we eliminate the kind of account abuse we were seeing this time last year. CPA is up because of the marketing increase and the more selective acquisition model. It's early days, but I'm much more interested in ARPU and it's positive to see that that is slightly up. So let's pick apart wagering trends. Changing the tennis turnover was the biggest hit, taking effectively two percentage points off our growth. But the tennis margin is back to normal at 4.4%, so though tennis turnover was down 13%, tennis gross win was up 19%, therefore justifying the decision.

Market closures represented around 1 percentage point. Or, to put this another way, decisions we took ourselves reduced turnover by more than £100 million. And to complete the picture, timeouts and automatic self-exclusions were effectively another percentage point. So, from a 1% decline, our underlying growth is about 3%. But that's clearly not good enough if the market is growing at a high rate. So how are we doing in terms of actives? The chart on the right shows that we lost customers through the Trafalgar launch last October, but we're now getting back to better numbers, so that is a more encouraging position.

Turning to gaming, a 6% decline is not good and there's a clear focus on returning gaming to growth. There are a lot of excuses here. Fewer content releases than normal, market closures, regulatory impacts, jackpot wins and so on, but for me it's about how we turn this around, so we'll come back to that as one of my four priorities later on.

Finally, a quick update on timeouts and automatic self-exclusions, which is just to say that we're seeing slight changes in the average weekly account number and the return rates are I'm proving slightly.

Retail is a much easier story to tell. Wagering is down, but the margin is up and has been for much of the half. The primary driver is tier three racing results, where margin has been high, so recycling has been low. Am I concerned about this? Clearly a decline catches the attention, but I'd be much more concerned if gross win was declining as well. Gaming machines continue to grow. Just to pre-empt a question, this is not about adjusting RTPs, it's about more slots content and good operational discipline, after Nicola restructured retail's gaming team. In costs we're factoring a potential bonus in employee costs, so that's the main shift there.

What's really interesting to me is that this is the first time in years that retail hasn't faced a significant tax or regulatory change. So I know some people are ready to write off retail, but I think this shows what this cash generative business is capable of, given a clear run. The key deliverable for retail in the period was getting our proprietary SSBTs into the shops. Before the Euros we put 800 in 600 shops, ahead of our 500 target. Early results were in line with expectations, so we're moving ahead with the next 1200 before the year end. The team is also now looking at bringing in more content and it was great to have one-minute markets on the SSBTs as well as online for the Euros.

On to Australia, as I said before, we're now into double-digit turnover growth rates, which is good to see. That's not translated into profit growth just yet, partly because horseracing results have been very poor and partly because marketing, particularly FVAs, was weighted to H1 for the Australian sponsorship, for the open tennis and the brand migration work.

Looking at the KPIs, the active decline reflects the legacy Centrebet brand and the tomwaterhouse.com migration. ARPU is lower because of the gross win margin and because FVAs were AUD10 million in H1 this year compared to last. New accounts look good and the move in CPA is marketing spend. Those of you who were at Tom's presentation in June will know Australia is delivering a lot. 31 product initiatives launched in H1. There's more coming in H2, especially for the spring carnival. The William Hill brand, which was 83% of actives in H1, had new accounts up 38% and turnover up 28%.

The tomwaterhouse.com migration was completed successful. The IP retention was very good and their revenues are now higher, as they're enjoying a better UX and have more product to bet on. That's given us the confidence to bring forward the Centrebet migration, which is now underway and will complete in the second half.

What we're looking for is market share gains. We assume the market is growing at around 15%. We're ahead of that for the William Hill brand and our exit rate for the half was also ahead of that for the business as a whole. The counter to this progress is regulatory risk. In play and credit betting bans are on the table. Greyhound racing has been banned by two states and we don't know if others will follow. And South Australia is talking about a point of consumption tax. For me this just goes to reinforce the need for scale as a regulated market operator.

The U.S. is a strong story. There's still excellent growth in wagering from both the sportsbooks and from mobile. The margin was a bit weaker as we had some poor baseball results, but it's still dropping through to very good profit growth and we're still innovating. We've brought virtual racing to Nevada this year and we're leveraging what retail's done on SSBTs to enhance our kiosks. Overall this is becoming more than just a nice little business with optionality and as the market leader in Nevada by a number of sportsbooks, we remain well positioned if the U.S. market opens up which brings me on to the second part of my presentation, the focus areas. Let me start by giving you my view of William Hill today. We've got an iconic brand that's not only the most trusted bookmaking brand in the UK, it's also proving successful in other markets. Retail is still demonstrating its strength. It's generating cash and it fits well with online. Online is a big UK business. It's still very profitable. It delivers high quality revenues from regulated markets and it's getting faster and slicker now we control our technology.

Internationally, Australia is now delivering profitable growth and we've got a leading position in Italy and Spain. The U.S. is also profitable and has a great optionality and we have opportunities for self-help, which I'll come on to. That said, we're not without our issues, so let me take you through my four areas of focus right now. These being online's turnaround, the technology roadmap, operational efficiencies and international.

So starting with online, so far this year Q1 was all about Crispin putting his team in place and Q2 was all about our mobile sportsbook, where we've massively overhauled our user experience. I'm not going to go through all these examples but let me sum it up. We've delivered faster than ever before. Whereas last year saw only two app releases, this year has seen seven and also multiple web-based updates every week.

We've significantly improved the app-loading time, closing the gap on key products like Cash In and fixed problems like the football acca journey. We're also innovating again, giving customers an experience they can't get elsewhere. We're making it easy to surf for different bets, with a search function, encouraging customers to stay on the app longer, with TV and engaging scoreboards, pushing relevant and interesting bets to them and then giving them longer than our competitors, to decide to cash in.

And we've launched four language sites with four fully translated sportsbook apps and the app has gone live in the German app store. And this is the difference in black and white -- or rather full technicolor. What our app looked like last October and what it looks like now, after a complete overhaul of the design before the Euros. So, sportsbook is now competitive and fit for purpose, so in order of priority H2 is about the customer experience, gaming and then further sportsbook innovations. We've got to get the journey of how customers navigate around the site right. That's about the landing pages, the registration process and the deposit systems for a start.

For some customers it's easier to reregister than it is to reset your password. As Crispin will tell you, it's about making navigation as quick and easy as possible. Just to give you one example, we've just launched an automatic address look-up facility for the registration process. In the first few days we've seen the drop-off rate fall from 4.4% to 1.8%, which will translate into thousands more registration processes each month being successfully completed.

Gaming needs to have significant focus. We need to be getting content out there. The lobbies are all over the place with no consistency, so they need to be redesigned. The cross-sell journey from sports to gaming is still too slow and the lack of a single wallet between OpenBet and Playtech has been a friction point for years. The target to put the key customer's touchpoints right is the end of this year. For those of you who use the app and I hope many of you do, you should start to see progress sooner rather than later.

On sportsbook the product team has a long list of what they want to achieve and we're now getting through that at pace and getting back on the front foot competitively. In marketing we've also been fixing the basics, progressively removing the bonus abuse. We've put in process fixes, we've removed loss-leading campaigns and we're realigning our affiliate spend. FVAs have naturally come down from that artificially high level we saw in Q1 and we're implementing a new data platform that's giving us better reporting, better ROI management and better customer insight.

As I've said before, the first question for me isn't whether we should be spending more or spending less. It's whether what we're actually spending is efficient. The chart on the right shows you what I mean. This is research from McKinsey and it shows we're the biggest spender on paid search but have one of the lowest click through rates in our industry. We're not efficient.

What I want from marketing in the second half is all about efficiency -- more account management improvements, more optimization of FVAs and optimization of our PPC spend. And also ensuring we have the right marketing mix. Competitors are already ahead of us on programmatic marketing, but our new data systems can now support that.

We can buy our media more effectively, targeting customers who download the app but don't register, those who register but don't deposit and driving CRM to dormant customers, through media, rather than relying on email and push notifications. Because now we need to encourage retrial by customers and that's the target for our campaign during the early months of the football season.

The majority of the product and marketing work will be complete this year and then I expect to see benefit progressively come through next year. We'll monitor progress primarily through our actives and our average revenue per user and internally we're closely tracking ROI for marketing.

My second priority area is technology. For me this is all about getting on the front foot. We spent a lot of time doing Trafalgar and took our eye off the ball in other areas. We built a good technological platform that means we can change at speed, but we delivered a poor UX. So we have reassessed and brought in the right expertise. The level of activity and the ability to turn around ideas and requests from the sportsbook team have massively improved under Crispin and Kevin. Now we've put two further pieces in place, the means to build a new back end platform and the resource to support both the front end development and the back end project.

We announced the Grand Parade acquisition on Tuesday. I think of this team as a large technology cell and they already do a lot of work for others in our space, so can hit the ground running. With around 200 people they can backfill our 75 or so IT vacancies, plus another 85 roles currently outsourced to third parties and in addition catch up on the backlog of innovations online want to deliver. They bring proven expertise to the UX, will help us realize the potential of Trafalgar and support other projects across the Group, including the omni-wallet, for retail.

The OpenBet deal will give us a bespoke platform tailored to our needs. It's likely to take around three years from the time we start, to deliver all the pieces, but it'll be a platform that supports our long term needs.

When we come off OpenBet 1 to OpenBet 2, it needs to be as seamless as possible and the approach we've taken will help us achieve that. With many of our customers also using the OpenBet platform it means we get there before others and with a degree of exclusivity. In terms of the retail reorganization I'll leave the detail to Nicola in Q&A, but the main driver here is to focus on customer experience and to get management closer to the shop teams, with better spans of control across the management structure and cluster managers more focused on the commercial environment for their shops. The added benefit though is this will keep staff cost increases within manageable levels for the medium term.

There are consultations ongoing with employees right now and our goal is to implement on January 1, so the exceptional charge of around £12 million for this activity will be split across 2016 and 2017.

Now turning our attention to other parts of the Group, you'll have read previous media coverage of about KPMG work. What this is about is that we've grown rapidly and organically as a Group for several years. Having built four separate divisions and a large scale Group infrastructure it's the right moment to step back and assess whether we're being as efficient as we can be. As an example, I'm no HR expert, but something tells me having 23 different HR systems isn't the right way to manage 16,000 people.

There's a lot of work ongoing right now and I'm sure you appreciate some of the outputs have to be handled sensitively for our employees. You can, however, see from the pie chart on the right hand side, the scale of our cost base for our UK businesses. This excludes either the shop costs or the marketing costs that were addressed elsewhere. And from what I've seen so far, I have to believe that there are decent cost savings to be achieved. That said, it's about more than costs. It's about having a more effective operating model, a better customer focus and more support for many of the plans I've already laid out here.

Turning to international, this is a key pillar of our strategy, so we must ensure that we're on the right path. First, we're reviewing our current markets to ensure they've got the appropriate level of focus and resources in terms of product, marketing and people. Next we need to make clear decisions about which markets we're going to invest in. We also need to be more creative in thinking opportunistically about earlier stage markets, whether organically or through M&A. It is still a risk-based approach and we'll still be very disciplined on how we use our capital, but we should be more flexible in our approach to markets and to the means by which we target them. And yes, that could mean bolt-on acquisitions in certain cases.

Finally, let me leave you with my key takeaways. In William Hill there are four profitable divisions, all with strong fundamentals and at various stages of the gambling maturity curve. From the mature, but highly cash generative retail business, to the U.S., where there is huge optionality and where we're optimally placed. In between these is online, where we understand the issues and the team has specific plans to address them and is working hard to resolve them.

Behind this we have secured financing for the medium term with a new bond and operate with a robust balance sheet, benefiting from strong cash generation. I've set clear priorities for the Group, to accelerate the recovery of the online business, to deliver our technology platform, which will enhance the user experience, to increase operational efficiencies throughout the Group and to refocus our international growth.

I've a very motivated team that is not only determined to put things right, but also become market leading again. Nicola and Crispin will join me shortly, but several others are also in the room and will be available to answer your questions afterwards. Finally, I'm pleased that Mark Summerfield, who has joined us on secondment from KPMG to fill the interim CFO position. He is also with us today, though I think it would be pretty unfair to expect him to answer questions just yet.

Thank you for listening. Nicola and Crispin are on their way, so we'll open things up for Q&A. We'll take Ivor first, as a first.

Question-and-Answer Session

Q - Ivor Jones

Ivor Jones from Peel Hunt. It's quite a sharp increase in employee costs in online. Why now, given that Trafalgar is rolling off? Should we expect that continued high growth in cost when revenue isn't doing so well? Bonuses you highlighted as a problem. They've been an issue for the industry since the early days, so again, why now is this a problem that's being addressed? Can you quantify what you think the cost is that can be eliminated? At the full year you quantified progress with omni-channel, people who were Solus retail users and people who were online retail. I just wonder if you'd put some numbers on that or some indication of how that's progressing? Thank you.

Philip Bowcock

I'll let Crispin talk about bonus. Nicola can talk about Omni. With regards to employee, the cost line in the UX, that's -- sorry that's online, that's really been generated by our UX and our investment in making sure we get the UX experience right. So we don't see it accelerating any further from where it is at the moment. Crispin, do you want to -- ?

Ivor Jones

Will all the Grand Parade people go into that line?

Philip Bowcock

They will eventually yes. Some of them will, some of them will go into IT as well, so it's [indiscernible] group.

Crispin Nieboer

On bonus abuse, in terms of why now, well, we did experience some increased bonus abuse last year. Bonus abuse is a fact of life in the gaming and betting industry. It can be managed well or less well and I think there are some areas where we can make some improvements and we're doing so.

In terms of quantifying that amount, I don't want to go into details, but I would say that the value of it is in -- or the saving opportunities for us are in the millions rather than in the thousands and I have a very clear plan on how we do that. It's really around having a single customer view with our new data platform, UNO. It's around fixing the tech, fixing the processes and fixing the roles and responsibilities and we're well on our way in doing that in the second half.

Philip Bowcock


Nicola Frampton

Yes, sure. We've just done an eight-week focus campaign across the Euros to encourage customers to sign up to online from retail. That was actually very successful for us. We delivered around about 10% of online's new first-time deposits in that period and we achieved a 71% conversion rate from the signup through to deposit.

So we're actually now evaluating the benefits of that, but actually it isn't just about pushing customers out of retail into online. There's an awful lot more work that we need to do from an omni-channel perspective to facilitate the journey for customers in both directions. Our industry research, it's done collectively across the industry, actually suggests that the number of omni-channel customers actually is quite steady.

So it tends to -- it's reflecting -- it implies it's effectively a holding pattern, so customers go in, try omni for a while and then either decide to go back into retail or probably stay more in online. We're not seeing any massive growth in omni-channel customers. So at the moment, for William Hill, we're still roughly 70% retail Solus and 30% omni-channel broadly. Our main focus is to ensure that we increase the capture rate within the William Hill family.

Vaughan Lewis

Vaughan Lewis from Morgan Stanley, I've got one for each of you, if that's okay. You said the self-exclusions are slightly better and the sports results are obviously quite good overall, so you made up the losses early on. But you're not changing your guidance. So are underlying things a little bit worse or in line? For Nicola on SSBTs, how many BGT ones have you got and how do the new ones perform versus the BGT ones?

And then on online, can you just talk about that data that you just mentioned a bit more and how good your view is of the customer with all the different systems and all the different channels, how quickly you can assess lifetime values and whether you're still seeing disappointing trends from the 2015 signups that was mentioned in February or May, I think it was. Thanks.

Philip Bowcock

Let me talk about the guidance piece. I'm sure you'll understand, Vaughan, that like you I'm straitjacketed by what I can say by the lawyers and everybody else because of the offer period and so I can't say anything else other than we're going to maintain the guidance as it was previously.

Nicola Frampton

Shall I take the SSBT one? We've got 800 William Hill SSBTs and we've got 793 BGT machines. The rollout of the William Hill ones predominantly didn't really land until week 23, so the bulk of them would have been out less than five weeks before the Euros started. So it's early days and it's not necessarily the right time to give you a real lot of detail. However, what we did see over the Euros, Vaughan, is that at peak betting periods on the Euros the William Hill SSBT has achieved 77% of the BGT machines in our estate. So I think that's quite a credible and positive performance considering that they were still very young in their adoption curve that we would typically see. So very happy with how they've gone so far, but as I say, it's early days.

Crispin Nieboer

On the data platform, which we're calling UNO, look, it's at MVP level, minimum viable proposition level, at the moment. The great thing about UNO, for the first time we do have all the data about our customers in one place. The next step is for us to look at moving it to a real time system. At the moment, the data isn't real-time. It's slightly delayed. But it's a positive step, UNO.

One of the issues we had with bonus abuse, for instance, last year is that the bonus data saw a different system to a lot of the other core customer data that we have, so piecing it together is always quite time-consuming and painful. We also take your point on LTV forecasting. We have introduced from the BI team in Gib, we have introduced their LTV forecasting algorithm models into the teams in Tel Aviv, the marketing teams, in a way that they go about their marketing in Tel Aviv to ensure that they're looking very carefully at LTV modelling; looking at player values at month one, month two, et cetera. But there is a lot more to do on improving our efficiencies there. So it's progress, but still lots of hard work ahead.

Chris Stevens

Chris Stevens from UBS. Three questions from me, please. Firstly, on retail staking levels. Down 4%, obviously explained by the stronger margins. Ladbrokes came out yesterday with a higher number. I guess the question is, do you think you're losing any market share and what can we expect to see for the full year, assuming margins normalize?

Secondly, in online, the gross win improvement was I guess quite small compared to the improvements we saw in retail. Is there a mix of sports reason within that? Or if you can just give some more color, that would be helpful. Lastly, on free bets in Australia, I know it's quite high, particularly in Q1 around the Open. But how does Q2 to compare to Q1 and what can we expect for the full year in terms of free bets? Thanks.

Philip Bowcock

I think if I take the Australian one first, I think the highest quarter will be quarter 1. You won't see those levels in the second half that we saw in quarter 1. I think if we talk about retail, the staking levels, I think that for me, as I said, the important thing is the gross win, what falls through. I think for me the important thing is about bottom-line profit and about shop profitability. If I look at our estate, we have quite a significant margin, the most profitable shop estate in the UK. So that's where I'm focusing on in retail -- and Nicola and the retail team focus on is the overall shop profitability. Do you want talk about margins and online?

Crispin Nieboer

Yes, can you just repeat your question? I wasn't quite sure what you are looking for.

Chris Stevens

Well, sports results were good in the half, retail saw a greater uptick in gross win margin than online, just wondering [indiscernible]?

Crispin Nieboer

Yes, the main difference between online and retail on margin has been the overweighting in online with regards European football and European football results were pretty painful in the first half. That's the main point of difference.

Alistair Ross

Alistair Ross from Investec, just one for me. In terms of total gross win on slide 6, the drop through to operating profit of that additional gross win, can you just give us some clarity as to drop through or the costs that are associated with both the £24 million and the £36 million that fell into H1 and also that that fell into current trading?

Philip Bowcock

I haven't got the detail here, but I suggest we pick it up later. I'll pick it up later with you.

Patrick Coffey

It's Patrick Coffey of Barclays. Just one for Crispin, actually, obviously lots has gone wrong with the online division over the last three years. You've been in the business for around six months or so. There are lots of different issues, but if you could just boil it down to one thing that went wrong in online and how you're changing that going forward?

Crispin Nieboer

Sure, yes. There are lots of contributors to the decline we've seen in online over the last 12 months. If I was to pick one and hindsight is obviously a great thing, if I was to pick one it would probably be the execution of project Trafalgar, not the strategy, I think the strategy was spot on. From an execution point of view, I think there's some lessons learned there and I put it into three buckets, really. The first is around UX.

I think we focus very much on the not insignificant technical challenge of project Trafalgar, particularly when you're looking at the very high traffic levels that we deal with. I think the team took a view that the UX was something that could be dealt with second to that, which I think was a mistake. The second issue is in terms of insight, the old site we had wasn't tagged properly. It meant we didn't have really strong data on how customers were using our previous mobile products and therefore the way that they would use our new one. I suppose the third area is on prioritization.

Whilst we were working on Trafalgar and Trafalgar took slightly longer than we all hoped, it meant other things were de-prioritized, things that were working on now, things like the player journey, top end of the funnel, things like gaming and things like desktop. Those are the areas of pain that we took as a result of Trafalgar. But, having said that, we now have this fantastic platform that's enabling us to go at a very high speed and very high quality of releases and the team -- and Stuart Weston leading that team who I put in when I started as director of sports P&L have done a really great job. If you look at the sports app, I think it's clear to see.

David Jennings

David Jennings from Davy. Just one question, just in relation to Australia, I was wondering what measures are you taking to de-risk that business in terms of exposure to credit betting, given the possible restrictions that may come into place?

Philip Bowcock

When it comes to credit betting, we don't know exactly how and when any regulation around credit betting comes in. So we don't know if anything is going to be grandfathered or not. Clearly there is -- about 20% of our business comes through credit betting. Clearly, if credit betting were to be banned in totality, we would not see a 20% decline because credit betting has been a way of life in Australia for -- well, since -- probably since betting started.

So at the moment we're not actively doing anything. We're monitoring the situation very closely and clearly there will be some lead up time before -- between when a decision is made and actual enactment. So at the moment we're just watching the position as we're with all regulatory changes in Australia very closely.

James Ainley

It's James Ainley from Citi. A question for Nicola. Could you talk about the key elements of the restructure you're putting through retail and what particularly are the benefits you're seeking from that?

Nicola Frampton

Sure. The objective of the modernization is really about having an operating structure that both fit for purpose and fit for the future and it currently isn't. We've had the structure in place now for over 10 years and in that time it's been stretched to breaking point with all the layers and layers of incremental changes that have occurred over that decade. It effectively stops me from progressing and moving talent around the organization. It's effectively created a straitjacket.

And what we've also ended up with is a bit of an hourglass organization structure so there's one level, the first level of line management the DOMs in particular are really, really stretched, because we've constantly layered up the responsibility as the retail estate has grown. So yes, clearly, I need the retail business to be relevant for our customers, but I also need to make sure that it's sustainable for both employees and investors. I want to make sure that we also secure our position as the UK market leader. So we needed a new structure to take us forward. The key outcome really is the insertion. We're moving to a cluster model and that will effectively insert a new layer of line management into the organization, it will be 359 new roles at that level.

That role is going to play a really crucial part in how we improve our operational performance out in retail and really get focused back on what's important, which are the customers, the customer experience, so the role will be very much around coaching and developing and growing the performance of the shops, improving that. When I've met some of you before, I've commented probably regularly that everyone in my structure currently in retail ops has got operations in their title. So everyone's focusing on the same thing. There isn't clarity around roles and responsibilities.

There are variances and differences within the organization and how things are done. So we lack consistency. So that will be addressed through the structure and actually, it will ensure that we now have roles that are focused on business development or market share growth on what the competition are doing, et cetera, which is something that we lacked formality around previously. So our new structure effectively addresses all of these points. If it goes as well as the gaming structure did last year, then I do expect it will also be revenue enhancing.

Brian Devitt

Brian Devitt from Goodbody. Just one question, please, just given the technology roadmap and the deals at Grand Parade and NYX, is there any change to CapEx guidance for the full year?

Philip Bowcock

Not at this time, no, we're not changing CapEx guidance, it stays within.

Simon French

Simon French at Cenkos. Three from me, please. Firstly, on the cash flow, Phil. You didn't pay much tax in the first half and there was a working capital inflow of about £25 million. Is that going to normalize over the full year? Then on cross sell, you said it's below average. Can you just tell us how many sports book customers do cross sell into online gaming? Then thirdly, Nicola, what's the policy on single manning of shops in the evening, please?

Philip Bowcock

On the cash flow, we had a small tax rebate, so that will normalize and the working capital due to payments around the Euros of marketing cost, which clearly get delayed into the second half. So again, that will normalize over time. We won't give exact numbers on the cross sell, but you can give an indication of what's going on, Crispin.

Crispin Nieboer

Yes, I would want to disclose the number, because it's sensitive. But what I would say is that the cross sell number, the percentage of our sports book customers that go on to play gaming is steady. But I think there's room for improvement.

Nicola Frampton

Just on the single manning point, our policy is unchanged. We take very much a risk-based approach and we've no plans to change that or indeed extend or increase that as a result of the restructure. But our current single manning policy is proving effective. We haven't seen any material change or increase in serious incidents since we originally introduced it. So we're pretty happy with where we're at.

Richard Stuber

Richard Stuber from Numis. I have three questions, the first two on retail, please. The 359 new positions, are they going to be additionals into new jobs or will they be coming out of other parts of the management hierarchy? Just if you could clarify that. The second one is on retail, SSBTs are what proportion now of OTC turnover and how's that changed and where do you expect that to get to? The final question is on the share buybacks. Clearly, you had to hold them back during the offer period. Are you still looking to buy back up to £200 million? Or it seems now your appetite for M&A and bolt-ons seem to have increased?

Philip Bowcock

I'll take the share buyback and then Nicola can take the other two. She is being kept busy. The position on the share buybacks is clearly as you've said, currently we're in a place where we can't continue. Previous guidance has been we'll operate between 1 and 2 times. We exited the half-year at 1.7 times. The Board will review the position as and when we come out of the offer period.

Nicola Frampton

So just in regards to the new roles, the new BPM role will effectively mean that we see a reduction in the number of district managers and area managers in the organization structure moving upwards. So there will be a few redundancies but not a significant number. We'll still be over 300 new roles in the organization. From a shop perspective, we expect the majority of the workforce will either be unaffected or better off under the proposals. You had another question, didn't you? Sorry.

Richard Stuber


Nicola Frampton

SSBTs. Yes, it currently running at 3%, at the end of the day, what we do going forward will really depend on how they perform, they need to earn their keep. So we haven't set a target. We know what we need to achieve per terminal in order for them to be successful for us and the extent to which we roll them out to grow the business will be very much determined by the value they deliver.

Philip Bowcock

I think for me, the piece on SSBT is we know -- we've got 800 competitors have got far more. For us also don't forget they are proprietary to us, so we don't have any revenue share with anybody else, so we keep it within the William Hill family, for want of a better expression. Also, our SSBTs are our own product and we can mirror what we're doing online on our SSBTs. So for us, it's a great opportunity going forward.

Nicola Frampton

Considering we've generated 3% from the total estate with the machines that we had, if you look, that's actually broadly in line with what Ladbrokes effectively had across their estate, they've got four times as many SSBT terminals and we're talking about the region of about 10%.

Richard Stuber

Just to clarify, the 3% is the average for the half, not the exit rate?

Nicola Frampton

It's just a predominantly at the moment through the Euros period, because we've had such a short amount of time for them being out there, yes.

Richard Stuber

It is the exit rate.

Nicola Frampton

Yes, it is.

Jeffrey Harwood

Jeffrey Harwood from Stifel. Two questions. First of all, online, the companies had a pretty strict policy towards grey markets or illegal markets. Are you still committed that approach? And then secondly, just on the retail reorganization, I'm not sure, is it cost neutral or is there some cost coming out of the business?

Philip Bowcock

With regards to the online and the policy around grey markets, we will continue to monitor the position closely with countries and we will not go into a grey market unless we have the appropriate legal advice. That is the position. With regards to the retail reorganization, I think what you can expect to see is normal wage inflation coming through in the retail environment as a result. Any more questions? One at the back.

Joe Thomas

Hello, it's Joe Thomas from HSBC. Just on -- a couple again on retail, please. Just on the retail reorganization and the cost inflation, what is actually driving that and prompting you to do what you're doing? Is that minimum wage knock-on effect? Or is there something else going on there? Then also on retail, potential money-laundering regulations and changes, can you tell us what your thinking is on that and perhaps how you're trying to position the business ahead of regulation--?

Philip Bowcock

On the money-laundering, were waiting for the final outcome of the fourth money laundering directive and as and when that comes out, we will act appropriately and I think that's probably due out sometime next year. With regards to the retail reorganization, I think Nicola has outlined it. This is about putting the right organization structure in place, so it's getting people closer to the business, we've been able to create the 350 odd jobs, but it also provides a clear progression structure for our colleagues through the organization. It is at the same time that we're able to also minimize the impact of the national living wage as well. So the two things go very much and in hand. Over to Alistair.

Alistair Ross

Sorry, just one more from me. Crispin, you talked about Trafalgar execution being a big risk and obviously that was a problem in Q3 2015. Can you just talk about what else needs to be done for the remainder of this year? Do you see that as a major risk going forward for the remainder of 2016?

Crispin Nieboer

No, I don't see that as a risk at all. I suppose to start with, what I've done in the four or five months I've been in the role, initially the absolute focus, as you say, has been around sports book mobile. We've also done some good work in areas such as bonus abuse improvements, focusing on the team structure, bringing innovation from being outside the P&L divisions to within them and also hopefully, I believe, clarifying the vision.

The second half is -- the focus is really across four or five areas. Priorities for me are gaming, the player funnel, so that's the top end, where we focus on each stage of the customer visiting the site, registering, depositing, KYC, all of the customer touch points we want to excel in the conversion that we achieve. Thirdly, it's around marketing, particularly on digital marketing and international has been our fourth.

So those are the areas that we're focusing on. In terms of completing project Trafalgar, we're not far off doing that. Mobiles are pretty much there. We're close to 100% on Android devices. Of course, there's a long tail there, some of which the cost benefit isn't that attractive to carry on working on. But desktop will be done in the second half of this year. We will run the new desktop site concurrently with the old and we will have learned our lessons on UX from last year.

Alistair Ross

So just on desktop, are you including mobile web in that? So in other words, desktops are roughly 55% of total still to do? Or what are we talking in terms of percentage yet to do, yet to transition?

Crispin Nieboer

So the desktop site is the only area left to do. iOS is done android is 95%, 96% done. So the only outstanding platform is desktop for Trafalgar.

Philip Bowcock

A final one from Ivor.

Ivor Jones

I think I heard the phrase building systems in retail to be UK market leader. You probably won't be by the end of the year. Is that important? Would you expand in retail bookmaking or would the business support the expansion into other retail gambling businesses?

Philip Bowcock

I think it's how you define leader. We're unlikely to be leader by number of shops, but we will be leader by profitability of shop. For me, this is all about profitability and making sure we're the most profitable retail estate out there. We will continue to look at opportunities.

We've spoken about SSBTs, we've got great optionality there to roll those out. We'll continue to roll those out. If we can cross sell gaming across both gaming and retail and gaming and online, we will do. I think we already have about 30% crossover of games. So we'll continue to look at the options of that. So we'll continue to do what we think is the right thing to drive profitable growth.

Philip Bowcock

I think that is it. Thank you very much, ladies and gentlemen, for your time this morning.

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