Do you think GVC’s performance can translate more into your share price going up in 2020?
We think so and we hope so. We’ve had a good run in the second half of 2019 in terms of share price, too. But the markets at the moment are just dire. I said last week ignore the share price the day the results come out because it really depends on whatever headlines that come out around the coronavirus. Flybe’s gone bust, for example, there are coronavirus-related headlines and the markets are in shock.
With GVC closing half the number of UK shops initially expected, where does that leave your focus on retail? Is there now a more optimistic outlook long term?
We closed down proportionately less shops than William Hill. I think we closed down 13% of our estate, whereas they closed down 33-35% of their estate. When we noticed they were going to start shutting shops quickly, we held back and I think we’ve benefited.
I’ll give you my conclusion on the future of retail. It is what it is; it’s going to be steadier now we’ve had the Triennial Review. There’s possibly a small amount of growth in it – flattish. It generates over £100m ($129.6m) in cash flow, which is meaningful for the group. Also – we talk about this, whether people listen or not – it’s fairly important for our digital business in the UK, in terms of omni-channel. About 17% of our UK business with Ladbrokes Coral comes from customers who converted from retail.
Those conversion ratios are continuing, so it generates a lot of cash and is important for our digital strategy in the UK. And it’s more profitable now than we expected it to be 12 months ago, as a result of our competitors shutting many more shops than we anticipated and us holding off. If there are three shops on a street and one of them is shut, the people in that shop are going to continue betting and go to another shop. We’ve hung around longer and reaped the benefit of it.
In terms of the online market, we spoke with William Hill CEO Ulrik Bengtsson last week and he felt there will be "a sensible and evidence-based" review of the Gambling Act. Is this a sentiment you share?
Yeah, I do, I think he’s right. I hope he’s right. People are realising that, if you take any blunt actions or draconian action, you’re going to drive players to the black market. Potentially vulnerable players are not going to be protected like they would be at GVC (Ladbrokes Coral), William Hill or wherever else. This activity certainly won’t be taxed, either, and more importantly, problem gambling won’t be reduced. You do need to be careful when making the right changes. If you make the wrong changes, you drive people to the black market – but I think people are realising that and I agree with Ulrik. I’m not as pessimistic about a review of the Gambling Act as I was when I first heard about it.
Analysts have spoken of German regulation moving in the right direction being a positive for GVC. What impact are you expecting the impending regulation to have for GVC-owned Bwin?
The German regulatory environment changes on almost a daily, certainly a weekly, basis. It’s a continually moving piece. I think there will be sports betting licenses and there will be some restrictions on the offering – not quite as bad as some people are expecting. We’ll be able to offer a licensed casino for the first time; not quite the offering we have at the moment but we’ll at least be offering it.
There is likely to be an EBITDA hit for Bwin but you will then get clarity on it; it is the number-one brand in Germany and we will look to absorb and kick on. If you want to talk about share price, I think the share price would react very positively to taking a hit on EBITDA in Germany while having clarity and some sort of fully regulated sports betting and gaming environment. I think it would be positive for us but if you ask me for hard numbers, there’s still too much uncertainty for me to give you those numbers.
To hear what Alexander had to tell us about GVC’s US aspirations, visit Gaming America.
