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Edited Transcript of WMH.L earnings conference call or presentation 9-Aug-19 8:30am GMT

Half Year 2019 William Hill PLC Earnings Call (Analysts)

London Aug 17, 2019 (Thomson StreetEvents) -- Edited Transcript of William Hill PLC earnings conference call or presentation Friday, August 9, 2019 at 8:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Nicola Frampton

William Hill plc - MD of UK Retail

* Philip Bowcock

William Hill plc - CEO & Executive Director

* Ruth Prior

William Hill plc - CFO & Executive Director

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Conference Call Participants

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* Edward Young

Morgan Stanley, Research Division - Equity Analyst

* Gavin Kelleher

Goodbody Stockbrokers, Research Division - Investment Analyst

* Ivor Jones

Peel Hunt LLP, Research Division - Analyst

* James Rowland Clark

Barclays Bank PLC, Research Division - Research Analyst

* Julian Kenneth Easthope

RBC Capital Markets, LLC, Research Division - Analyst

* Monique Pollard

Citigroup Inc, Research Division - VP

* Richard Paul Stuber

Numis Securities Limited, Research Division - Analyst

* Simon John Davies

Deutsche Bank AG, Research Division - Head of UK Midcap & Online Gaming Research

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Presentation

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Philip Bowcock, William Hill plc - CEO & Executive Director [1]

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Good morning, everyone, and thank you for joining our half year 2019 results presentation. Ruth and Nicola are with me this morning to present the financials and update you on our retail business following the GBP 2 stake limit, but I will start by briefly setting the scene.

So this is the first year of our new strategy. We made it clear it's a year of transition for all parts of the group, and the results reflect that and are very much in line with our expectations. We're making good progress against the plan we set out in our Capital Markets Day last year and are rapidly moving towards a business that is more digital, more international and has a more sustainable future.

In Online, Mr Green and our existing international business now represents 1/3 of our total Online business. In the U.K., Online has seen its performance improve as we've gone through the period, with net revenue up 7% in the second quarter. We have now rolled over the period impacted by our enhanced due diligence measures. We're completing the heavy lifting on some key projects that improve our long-term competitiveness while also improving our customer metrics, as you will see shortly.

We are seeing positive momentum in Mr Green. The integration is progressing well, and is on track to deliver about GBP 4 million of annualized cost synergies this year and GBP 6 million thereafter. In the U.S., we're building a business with meaningful scale, handling $1 billion of amounts wagered in the first half alone. Our market share was 27% in the first half. We're now live in 8 states, and we'll be launching in 2 more shortly. We're giving ourselves the best possible platform of serving all new states with the imminent launch of our new proprietary technology stack, the first solution designed and built for the very specific needs of this market. We're excited by the potential of the Eldorado Caesars combination, which would immediately allow us to expand the cash-generative retail business and offer significant digital and marketing opportunities.

In U.K. retail, we now know how customers are responding to the GBP 2 stake. Nicola will tell you how we've taken decisive actions to right shape the estate to leave a sustainable, cash-generative business. So far, the changes are very much in line with our expectations and what we set out as our plan.

And finally, we're making real progress on proactively tackling the regulatory agenda and rebuilding public trust. We're getting on the front foot on key issues on advertising, on funding for treatment, on encouraging safer gambling for all customers. We've made a strong start but need to do more to keep going. We'll talk more about all of these areas shortly. But first, here's Ruth with the numbers.

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Ruth Prior, William Hill plc - CFO & Executive Director [2]

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Good morning. Thank you, Philip. So as Philip said, we laid out our strategy in November, and this is the first half of year one. This is a complex set of numbers with a lot of moving parts as we transition the business. But my overall message is that we are where we expected to be.

So starting with the group income statement on a statutory reporting basis. Net revenue of GBP 812 million was up 1%, with growth in the U.S. and the addition of Mr Green from February offsetting steep declines in retail from quarter 2, with the impact of the new GBP 2 stake limit and weaker online U.K. revenues, while we transitioned through the period affected by the enhanced customer due diligence measures. Cost of sales were flat with 1 quarter of the change in remote gaming duty and additional Mr Green costs, offset by lower costs in retail linked to the net revenue drop.

Net operating costs were 9% higher, including Mr Green, but without the benefit of the principle cost mitigation measures for retail as these will come through from quarter 4 onwards. So as a result, adjusted operating profit was GBP 76 million, 33% lower than last year, but this includes a GBP 10 million loss from the U.S. expansion business.

We've also recorded an exceptional charge of GBP 114.3 million. Now of this, GBP 97.1 million relates to costs we're incurring for the retail mitigation strategy. In P&L terms, for the 700 shops we've proposed to close, we have to account for the full cost of the lease obligations through to a break clause under IFRS 16 and without any impact from mitigation measures, plus the estimated cost of redundancies and dilapidations.

Now in cash terms, our guidance is originally GBP 40 million to GBP 60 million. We're expecting to be at the upper end of that range. But based on prior experience, we are confident there are a number of mitigation measures, which drives the difference between the P&L number and the cash impact.

The other exceptional charges relate to the Mr Green acquisition and the tail of the transformation program. Now we have applied the new IFRS 16 accounting standard for leases for the first time, which we have adopted for the H1 2019, but we're not adjusting the 2018 comparative. And the impact is this: so depreciation increased by GBP 22.1 million; interest expense increased by GBP 2.3 million; and other admin expenses reduced by GBP 23.2 million. And therefore, the net effect is an increase in PBIT of GBP 1.1 million and a decrease in profit after tax of GBP 1.2 million in the half.

Moving to net finance costs, which are GBP 8.1 million higher with additional interest in the new GBP 350 million corporate bond, early interest payments from the early repurchase of part of the outstanding 2020 notes and the change to IFRS 16. On a statutory basis, there was also a tax credit of GBP 2.3 million on the losses. On an adjusted basis, the tax charge was GBP 3.8 million on adjusted pretax profits of GBP 50.8 million, giving an effective tax rate of 7.5%. Now this is a big change from last year because more of our profits are coming from outside the U.K. and also a provision was released following the sale of Australia. I now expect our full year tax rate to be around 8% because of that tax provision release, moving back to our medium-term guidance of 12% next year.

Basic adjusted earnings per share was 5.3p. It's worth noting the average number of shares increased to 871.8 million because of the shares issued to our U.S. partner, Eldorado. And the board have announced an interim dividend of 2.66p per share, which is in line with our previous commitment to an 8p underpin of the dividend during this period of transition and based on our usual practice of paying 1/3 of the anticipated full year dividend at the half year.

So moving to the divisions.

Starting with Online on a pro forma basis. Clearly, this is a year of transition and diversification, as we've described previously. In the U.K., net revenue is down as we rolled over the closure of customer accounts starting in mid-2018. New accounts and actives are down against strong acquisition during the World Cup period last year. Average revenue per use and cost per acquisition are both better than a year ago, with no World Cup spend and a continued focus on expanding our mass market customer base. Going forward, we're optimizing the balance between acquisition and yield, particularly with slower U.K. market growth and the improvements we're making to our data and marketing technology, which Philip will talk about shortly.

Turning to international. As a reminder, our international business now consists of Mr Green and the existing William Hill International business, which is now managed by the international team based in our Malta hub. Since we acquired the business, Mr Green has traded strongly in all key markets with the exception of Sweden, where new regulations disrupted the whole market in the early months of the year. We are now seeing Swedish performance improve month-on-month. During the first half, the new Malta-based team were very focused on the integration of Mr Green, but in the second half, they will focus more on other international markets, including Italy and Spain, with product improvements and marketing investment to come. So the ingredients are now there for the team to significantly improve our market position.

So the Online P&L. These numbers for Online only include Mr Green from the date of acquisition. Here, we have balanced growth from the addition of Mr Green, offset by our customer diligence measures. In the half, the impact of last year's enhanced customer due diligence measures was GBP 16 million on revenue and GBP 11 million on profit. That's following the GBP 23 million and GBP 17 million impact recorded in the second half 2018. That year-on-year impact is now at an end. Sportsbook amounts wagers were down 3%, principally because of these measures. You will also remember that gross win margin was above average last year. That's come back within our normal 7% to 8% range this period, resulting in Sportsbook net revenue being down 7%. Gaming fared better, up 37%, with the due diligence impact offset by the addition of Mr Green, which you will remember derived more than 90% of its revenues from gaming.

Overall then, revenue was up 14%. Within this, U.K. was down 1%, but performance improved as we went through the half. And in Q2, growth was 7% with underlying growth of 12%, excluding the impact of customer diligence measures. Cost of sales and operating cost increases also reflect the consolidation of Mr Green, and we saw the increase in remote gaming duty from 15% to 21% in April, which cost GBP 5 million in the period. This has resulted in an adjusted operating profit for the half of GBP 54.3 million, down 9%.

In the second half, we will be rolling over the due diligence impact from H2 last year, and we expect Mr Green to deliver strong growth, partly because we only completed the acquisition in February. Sweden trends have been encouraging, and the business traditionally has a Q4 skew, in addition, of course, to the delivery of synergies. Other international markets will also benefit from the focus of the new Malta team, new product and marketing investments.

So Retail. Now Nicola will talk to you about our do it once, do it right approach to remodeling our Retail estate, which will lead to a smaller but sustainable business with strong cash generation and an engaged team focused on gaining market share. Our confidence to do this comes from the results to date and our deep analysis of the betting shop market. Gaming has obviously been impacted by the new GBP 2 staking limit that came into effect from the 1st of April. As a result, the change in mix has resulted in a higher gross win margin. Q2 Sportsbook was in 7% like-for-like growth with substitution from gaming from April onwards. The underlying costs have been well managed, with a GBP 2 million increase from national living wage increases in April being offset in other categories. And you can see the impact of IFRS 16 in the 2019 numbers, with the shifts between property cost and depreciation. Depreciation and amortization also came down GBP 4.4 million in the first half as a result of the impairment last year.

So as I said at the Capital Markets Day, we're looking at 1 quarter of normal profit from retail this year, and 3 quarters of disruption as we work through the mitigation measures with more benefit accruing as we progress through Q4, closing loss-making shops and moving towards our new operating structure. And our expectation is the market will act rationally. To date, there have been around 350 shop closures across the sector.

On to the very pleasing picture in the U.S. Here, we have strong momentum with 27% market share across all states that are regulated so far against our long-term ambition of 15%.

In Nevada, amounts wagered grew 16% on a local currency basis, continuing to be driven by mobile growth in a market that has been regulated for some time. Mobile now accounts for 69% of Nevada wagering. And of course, it was an impossible task to match last year's unusually high gross win margin, and we reverted to a much more typical level of 6.5%, meaning net revenue was down 2%. Our market share remains at 32%.

In New Jersey, we are the #1 non-fantasy brand. Our margins across mobile and Retail are market-leading in the state, early signs of the benefit of our experience in this market. Market share for digital was 10% in the period, 16% as we exited the half. This is ahead of having the technology in place and ahead of significantly pushing our marketing or committing to a media partnership. So a good outcome so far, with further building blocks to come.

Other things to note, that's GBP 1 billion of amounts directly wagered in the period, and 23% of our total amounts wagered is coming from states other than Nevada and New Jersey. So please don't underestimate the value of those smaller states, particularly when they also contribute early profit. Our aim is to be in every state that regulates. We are not represented yet in Arkansas and New York, the other 2 states that were regulated in the half. We are capital disciplined in our approach to our U.S. investment and decided the access fees being sought by New York casinos will not allow a sufficient return. If the Eldorado Caesars deal completes, we will have access to New York.

We have launched in New Mexico, and we will be launching in Iowa and Indiana in the coming weeks, access coming primarily from our partnership with Eldorado.

So in terms of the U.S. numbers, I'm giving you again the transparency of what's coming from U.S. existing digital expansion and Retail expansion. As anticipated, Nevada-owned expansion Retail profits are underpinning digital investment, with the division in a small profit for the first half.

Direct wagering growth is 51%. If you include the service provider wagering, growth is over 90%. This shows we are able to serve customers across the portfolio of business models. Our U.S. expansion business directly handled $241 million in the period, making it already equivalent to nearly 1/3 of what we do in Nevada. Gross win margins were in line with our expectations across the piece. We recorded a loss from the expansion business of $13.1 million, down from last year when we were carrying a lot of startup costs ahead of starting to generate significant revenues. And we've invested CapEx of $26 million, around GBP 90 million, in our U.S. business in the half, with around $18 million going into the digital expansion, predominantly the technology platform.

So let's move to cash flow, which is a primary focus for the group. EBITDA was GBP 12.3 million lower, with group depreciation GBP 24.8 million higher following the IFRS 16 change. The acquisition of Mr Green results is a net cash outflow of GBP 170 million, and we invested GBP 60 million in CapEx, which includes work on the new U.S. technology platform. We issued a new GBP 350 million corporate bond and used GBP 170 million to repurchase part of the outstanding 2020 notes. With dividends of GBP 67.7 million, that gives us a net cash outflow of GBP 77.2 million.

So let me try and pull all of this together for you. We have a net debt-to-EBITDA for covenant purposes of 2x. The covenant calculations continue to be done on a pre-IFRS 16 basis. So we'll continue to focus on this metric. As I've said before, we expect the leverage to increase in the second half above our medium term 1x to 2x range because of the capital we're investing in U.S. expansion opportunity and reduction in retail EBITDA.

In terms of guidance, the group is in line with what we laid out at the Capital Markets Day and reiterated at the final results in March. As I've said before, Retail steady-state profit range is GBP 50 million to GBP 70 million. Given the timing of the mitigation measures, we should be around the middle of the range this year, moving to the top of the range in 2020. The shape of that in 2019 is 1/4 of normal profit than the change on the 1st of April and mitigation kicking in towards the end of the year. And exceptionals will be at the top of the GBP 40 million to GBP 60 million cash range.

Online, to reiterate, we are assuming mid-single-digit revenue growth in Online during this year of transition on a 52-week pro forma basis. That's in line with our expectations for our market. The U.K. is absolutely where we expected to be. Mr Green is showing good momentum, and we are focused on marketing and product to drive other international growth in the second half. And remember, the impact of RGT for the full year is GBP 15 million.

In the U.S., we have launched recently in new Mexico and are planning additional launches in Indiana and Iowa soon, and we'll track any additional states coming through. Good performance overall means that even with these additional states, we are still within our previously-guided range of a loss of 0 to minus $20 million this year. That will, of course, also play into 2020, and I'll update you later in the year on 2020 guidance for the U.S. As we have a number of moving parts that need to be clarified first, including the number of states and type of regulation, possible media partnerships and further access deals, the positive implications for us of the Eldorado Caesars deal and our view of ongoing investment levels. We have reshaped our divisional recharges in the period to more accurately reflect the shape of the business going forward, resulting in lower charges to Retail and increases to Online in the U.S.

And our commitment to fun, safer gambling measures, including investment in treatment, will increase that spend from about GBP 1 million this year to around GBP 10 million in 2023. In the first instance, we'll go from 0.1% of U.K. TDR this year at 0.25% in 2020.

And so with that, Nicola, Retail.

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Nicola Frampton, William Hill plc - MD of UK Retail [3]

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Thank you, Ruth, and thank you, Philip for volunteering me to be here today because you know how much I like presenting at these events. Look, it's fair to say that quite a lot has happened since I updated many of you at our Capital Markets Day in November, and I know there were a lot of questions at the year-end in March.

At the time, [I left at 32] we were expecting a channel implementation of October 2019. And this was brought forward a fourth time just a week or so after we met and this time to April 2019. That revised time frame put significant pressure on everyone concerned to ensure that we were trained and ready, and a substantial amount of work was required to make the machines and their content compliant. Alongside which, we also had to develop and implement a really strong customer-centric approach to make sure we could support our customers through the impact of the changes and also ensure that they were aware of alternative products available in the shops with support from colleagues. So actually, I'm really proud of what my team have achieved given all of these challenges. And I'm also really grateful for the support we have from Inspired during what was a really, really tough period for the business and everyone involved. But I'm sure it's not the inputs and the outputs that most of you will be interested in.

So in terms of outcomes, our gaming revenues year-to-date are down 45% post triennial or 25% down year-on-year. Now, given our starting point in casino, mix is relatively higher in the industry at 63% of our gaming revenues. I'm really pleased that we've performed marginally ahead of our expectations. But also, and I think this is really important, in line with the industry overall. Customer adoption of the B3 content has been in line with our models, and it is slowly continuing to improve, which is reassuring. And we're also seeing increases in Sportsbook staking of around 7% on a like-for-like basis post triennial, as some customers have discovered or returned to sports betting.

Same situation has been seen across the wide range of the sports. Horse racing, Greyhounds and virtual have been performing particularly well. And it goes without saying that might look like proprietary SSBT continue to deliver. We've got growth coming from a combination of increasing -- still increasing customer adoption and the continuous optimization of our SSBT estate to satisfy the demand. We currently have around 3,800 machines. They've been delivering around 17% growth in machine weekly average performance year-to-date. So they continue with their stellar performance.

All that said, on the 4th of July, we announced that we had commenced a period of consultation on the potential closure of around 700 of our shops. This should not have been a surprise to you, given that I've previously guided the impact of the GBP 2 maximum stake could result in up to 900 of our shops becoming loss-making. This has been a really difficult decision, particularly for me, and it's not been made lightly. However, I think given that the overall triennial impact has been in line with our expectations and the harsh economic reality to high street, decisive action is absolutely necessary.

Now you may wonder why we're taking a proactive approach, a one-off approach, rather than the creeping death option, although I presume my definition of the latter might provide a little bit of insight into that. But the impact of trail in parts of our estate will not be addressed through waiting for someone to blink first, and doing it once and doing it right has got some significant benefits, certainly, to William Hill.

Now firstly, it enables myself and the team to simultaneously align the retail management and support structures. Secondly, and I think this is really important, it provides much needed transparency and certainty for our employees. Importantly, in a relatively short space of time, it will enable us to refocus on the future. And it will send a really strong message to the market that the William Hill estate that is there, is there to stay. But ultimately, it achieved the optimum outcome from an EBIT perspective and ensures that we will have a sustainable and profitable future for the Retail channel in line with our guidance.

The majority of the closures will take place in Q4. However, there will be leases, which expire in advance to this. And obviously, we have pending consultation with colleagues that some shops may therefore close a bit earlier. And Ruth has already covered the exceptional costs with you, but rest assured, we are focused on minimizing those and the impact that has. We've created a dedicated team focused on maximizing things like rent reductions, early exit, sublets and -- et cetera.

So our remodeled estate will be smaller, as Ruth said, but perfectly formed. Taking this do it once, do it right approach will leave me with a remodeled estate that will be profitably in line with our guidance and deliver my objective to have all the right shops in all the right places. The picture on the chart there highlights the reach of our estate. The dots on there represent the William Hill shops where customers who place bets in Cheltenham during Cheltenham week went to collect there winnings. My point actually isn't about Cheltenham reach, but it reinforces the benefits of scale and geographic diversity, and that -- what that will have in our retail estate. Because convenience is still one of the primary drivers of betting shop choice, and we will still have that reach and that scale.

So in terms of sustainability, as part of the closure program, we'll be redeploying pre-loved assets from the closed shops, but most importantly, our SSBTs, and that will result in an increase in average density from 1.7to 2.5 across the rest of the estate. We've already got one eye back on the future. We've resumed trials of a number of gaming and sports week innovations as well as some broader customer experience initiatives, and always with a focus on our Nobody Harmed ambition, as Philip has said.

We've never stopped focusing on our operating costs. So you can expect that our average profit per shop will remain at the top end of the industry. But as a lot of this mitigation and development activity was assumed in our models, I can confirm that Retail remains in line with our previous EBIT guidance. So whilst I've lost count of the number of occasions, Retail has been described as resilient by my boss. I am yet to find a better alternative to describe it because that's exactly what it is.

I now hand you back to Philip.

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Philip Bowcock, William Hill plc - CEO & Executive Director [4]

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And it's not very often I get called boss. So before I move on to Online and Retail, I would just like to specifically call out the very professional nature that Nicola and the entire Retail team, all of our Retail colleagues, have shown during the very difficult times that they are going through at the moment. They've been very professional. Thank you.

So I do like this picture as well.

Let's moving on to Online and then to the U.S. You remember the strategy Ulrik outlined last year. It focuses on both incremental improvements in a number of areas and some heavy lifting projects to enhance our competitiveness for the long term, and we're progressing on all of these.

So let's start with the U.K. Let me give you some examples of what we've been doing in the half. We've made multiple improvements to our Sportsbook and gaming and customer experience touch points. We've improved our live casino product, for example, by enabling in-game quick deposits. We've improved the navigation in our gaming app, and we've upgraded our live scores, including live score push messaging for cricket and the addition of basketball. We've also enhanced our account recovery, age verification and registration processes and accelerated the release of the in-play offers in app. In terms of longer-term projects, we're further improving our marketing efficiency, with ROI up 10% in the period, and that's through new marketing technology, and that went live in the first half of this year with a series of new marketing models and enhanced analytics, thereby improving our marketing mix.

We're implementing our new data platform, which will land at the end of the year and support customer yield measures as we go into 2020. At the same time, we're staying focused on customer protection. In the second quarter, the industry implemented enhanced age verification measures at registration and a lower threshold for know-your-customer checks. On top of that, we've introduced a new multi-factor algorithm, built in-house to identify behavioral changes and risk behaviors in customers we need to interact with. And we're embedding a new case management system to ensure those customer interactions are integrated across compliance, safer gambling, CRM and VIP teams. All of this is driving improvements in our key customer metrics across the board. Customer satisfaction is at an all-time high. NPS is up 42% since the turn of the year. Our usability score is up 3 percentage points. Contacts to customer services are down on a 12-month trend. All of which shows the effect of our relentless focus on product, and we will continue to drive these underlying KPIs into the second half.

One of the biggest projects from Ulrik's list was to deliver a clear William Hill brand proposition, and we've done that in 2 stages this year. William Hill has never been about shock value or laddishness. We are a grown up betting brand, known for integrity, that already stands apart from many of our competitors. We started by wanting to drive brand reappraisal. And Anthony Joshua, our global brand ambassador, was the right guy to do that. That campaign lifted brand consideration by 6 percentage points and substantially boosted all our brand attributes. And AJ's "Control is everything" messages gave us a 40% uplift in customers interacting with our safer gambling measures on social media. But now we're taking it to the second stage. Today, the freedom to use certain forms of advertising is reducing. With the whistle-to-whistle ban having just begun, we are thinking more and more about how our brand can continue to support the business. We are shifting marketing spend from calls to action to investment in brand. Our research tells us that time spent betting on sport is an important moment for individuals. It's when they connect with friends. This combination of betting and sociability, something you'd clearly recognize from retail, is key as we grow the number of recreational and occasional betters who bet with William Hill. And it gives a unified proposition that can work in non-U. K. markets and across sports and gaming. You'll see new brands sport -- brand, sports and gaming adds in August and September, and then the brand will roll out across all of our channels.

But now to regulation. I hope you will have also seen how William Hill and some of the other largest operators are proactively tackling public concerns. For us, there are 2 big lessons to learn from the triennial process. First, we have to understand and address areas of concern and mistrust. And second, we have to work together as an industry. We've started by collaborating on 2 of the most talked about areas: advertising and funding for treatment.

On the 1st of August, we implemented the voluntary whistle-to-whistle TV advertising ban. While we will still advertise pre-watershed around live sports, there was just too much of it, and that had to change. For a football match, about 2/3 of the viewership of a typical English Premier League program is recorded from 5 minutes before to 5 minutes after the game. With this change, we're significantly reducing the volume of gambling advertising being seen pre-watershed. At the start of July, we were one of 5 companies that took a further step and committed to a 10-fold increase in spend on safer gambling. We want to quadruple the number of problem gamblers receiving formal treatment by 2023. It was announced by the Secretary of State in the Commons, and received support from DCMS, the Labor Party and the Gambling Commission. These are good steps in the right direction and more is happening in other areas like sharing data on at-risk customers. Our new industry body, the Betting and Gaming Council, will further cement this when it comes into effect in the autumn, one body with one industry voice on all the critical issues.

Turning to Online international. The trends in the U.K. market make it obvious why we need to diversify. The acquisition of Mr Green has driven a step change in this, as Ruth has said, and its faster growth will build on that further. The integration is going well. Our existing non-U. K. business has been merged with Mr Green to establish online international, based out of Malta with about 350 people. As I said, we've delivered GBP 4 million of annualized cost synergies as expected, and we're on track for the GBP 6 million target. We've seen good growth in Mr Green's major markets, except Sweden, where, after a few tough months, we're now seeing month-on-month revenue growth. We have also launched William Hill in Sweden in May. That's the first Sportsbook launch we've done in Europe since 2012. And by Q2, international was back into growth. In recent years, William Hill's international markets had to take a backseat to the U.K. After integrating Mr Green in the first half, the Malta team will be focusing more on these markets in a second.

We are making some key structural changes, for instance, Spain and Italy are still sitting on the old Playtech Mobenga front end. We'll move to our proprietary front end in Spain in the second half, and in Italy, in early next year. Spain is also getting a single wallet in the second half, creating a more seamless sports and gaming experience. These are pivotal to increasing our competitiveness in these key markets. Overall, we're delivering key changes quickly and giving ourselves a strong platform for double-digit growth in international Online. So that's Online.

Let's finish by focusing on the U.S. So you remember our strategy to secure market access, to rapidly deliver the technology and team we need and to build our brand profile and customer database. And I'll talk about each of these areas. A lot has happened in the first half. The market is now moving fast, and so are we. We've hit a good milestone on our road to building a scale business. William Hill U.S. handled a $1 billion of amounts wagered in the first half. You can see from public data that we're outperforming on gross win margins. And mobile is a big part of our business. It's 67% in the first half. When the technology stack goes live, it will be the first in the market designed specifically for the U.S. And we've got a great combination of retail and mobile with 24 Sportsbooks live outside of Nevada, which is giving us profitability, cash and brand awareness to support our digital expansion. And by this time next year, our U.S. partner could be the #1 casino company in the U.S., and I'll come back to that in a moment.

We've seen meaningful acceleration in states regulating, and you will see from this map that the initial focus in the Northeast is now spreading to the Midwest and beyond. We've already gone live in New Mexico in this half, and we expect to go live in Iowa and Indiana within a few weeks. Looking further out, there is a long line of states preparing to open up. The direction of regulation is all pointing towards more opportunities as states seek to regulate in order to take advantage of tax revenues and avoid revenues leaking into neighboring states that legislate ahead of them.

With regards to market access, last year, we looked very carefully at who to partner with and the associated economics. Today, our access is the strongest in the market with the widest reach and the most direct access. When it comes to mobile markets, we've got primary skins. So we're less reliant on how each state decides to regulate, meaning we are guaranteed access if states choose to allow mobile. And Caesars adds another 5 states on top of Eldorado's footprint, including New York, which went live on August 1 for retail. For mobile in New York, we may have to wait until 2021 or later. The markets live today give William Hill access to 34 million people. The addition of the next wave of states could increase that fivefold to 175 million. As announced, the Eldorado Caesars transaction is expected to complete in the first half of next year, more likely closer to January than June. If it goes ahead, then we can expect substantial benefits for William Hill. Under our existing agreement, we have the right to operate the Sportsbooks in Caesars' 34 casinos, and estimate that could generate $20 million to $35 million of EBITDA within 3 years.

At the Capital Markets Day, we said we expect to see $65 million of EBITDA this year from Nevada land-based in mobile and from the U.S. expansion retail business. So adding in Caesars Casinos already gets you close to the $100 million of EBITDA to support the digital investment. These are good early stepping stones towards our $300 million EBITDA target. Beyond that, as I said, we gain access to the pivotal state of New York. We have seen our first benefit from skins deals in the form of our GBP 7 million share of the initial equity payment from the deal that William Hill U.S. and Eldorado agreed with Stars. When Stars opens in states using Eldorado second skins, we can look forward to also receiving revenue share payments.

In terms of building our operational excellence, the pivotal focus to date has been to work on our proprietary technology platform, drawing on the best-in-class systems from across the group. It is designed to meet the very specific, very complex needs of the U.S. market. We need a solution that is cost-effective and quick to deploy in multiple states and able to cope with different, often complex regulatory, partner and customer requirements state-by-state. The new platform is in its final sign off stage by the DGE, the regulator in New Jersey, and will be up and running in time for the beginning of this year's NFL season. This technology platform will give the team more tools for competing in New Jersey Digital in the second half of the year.

The strong progress we've made over the last year and the rapid progress in state legislation means we're now in a good position to explore options for national media partnerships. This is about the right partner that gives us strong database and media integration. As with Eldorado, we want a partner that shares our vision of what this opportunity looks like, and we want to ensure our interests are closely aligned with the right economics to generate long-term value for our U.S. business. And this is also an area where the Eldorado Caesars deal can add value with a combined rewards program reaching 65 million customers and sports partnerships with the likes of ESPN, Turner and the NFL, plus a very well recognized gaming brand in the Caesars name. We have already had preliminary discussions with Eldorado as to how we maximize the value of our respective Sportsbook and online gaming assets.

So as you can see, 2019 is a year of transition, and performance, as we have said, is very much in line with expectations. We're making strong progress measured against the strategy we laid out, with diversification happening in online, decisive action taken in retail and the evolution of a very compelling opportunity in the U.S.

Thank you for listening. We'll now take questions.

I would add that Ulrik is here for any follow-up questions you may have in online afterwards.

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Questions and Answers

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Edward Young, Morgan Stanley, Research Division - Equity Analyst [1]

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Ed Young from Morgan Stanley. My first question is on Online. You talked about improvement in both the U.K. in Q2, and Mr Green looks like it was about, pro forma, about 10% growth in the half. Could you -- can you give, and perhaps, Ulrik, you can help, but can you give us some more color on the shape of what you've seen there? Obviously, everyone appreciates there's been disruption in Sweden. But what's the growth a bit like ex that disruption and the split between maybe Mr Green and the rest of the international business?

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Philip Bowcock, William Hill plc - CEO & Executive Director [2]

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I'm not going to go into specific countries suffice it to say that Sweden sort of as I think others in the industry have said, was difficult to certainly in the first quarter. But as I said, subsequently, we're starting to see month-on-month revenue growth. We are seeing positive, and we've seen positive growth from a number of other Mr Green countries. And I think that shows the benefit of having the diversified nature of the Mr Green business. It is probably fair to say that it's William Hill International or William Hill brand has suffered a bit more. And we are looking to the team, as we've said, to really push the growth in that business in the second half.

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Edward Young, Morgan Stanley, Research Division - Equity Analyst [3]

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And then the second one is on the U.S. I mean you mentioned the retail upside and you quantified that. There's a lot of other opportunities you sort of very briefly touched on: database, brand, media, et cetera. I noticed you also did mention, in relation to [Tom Reed's] comments about potentially spinning off that Caesars digital business. That's also something that you've had in discussion. So, yes, any more color around the other digital opportunities in there?

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Philip Bowcock, William Hill plc - CEO & Executive Director [4]

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No, I think -- listen, we have a very good and long-term partnership with Eldorado. Don't forget our partnership with Eldorado isn't just over the last 12 months. We've been running Sportsbook in their casinos for a number of years. So that relationship is long and is deep. As I said, we are having some very preliminary discussions about utilizing both of our assets to maximize value, and we will continue to do so. And beyond that, it's really too difficult to comment.

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Edward Young, Morgan Stanley, Research Division - Equity Analyst [5]

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Understood. And then final -- finally, you mentioned online casino very briefly. I wonder if that's something we could maybe touch on a little bit more in terms of plans? And connected with that, Retail. I think you said you were going to give it a little bit more shape on U.S. guidance next year. I may have missed it, but can you just talk a little bit about where you see numbers next year?

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Ruth Prior, William Hill plc - CFO & Executive Director [6]

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So in terms of -- on U.S. guidance, I said, I wasn't going to do it today. I'll give it later in the year. We really need a number of pieces to fall. We need to do a little bit more work on the real opportunity we see with the Caesars Eldorado deal. We are looking at media partnerships and other key access that we need. And obviously, we need to know which states are going to regulate and under what sort of model. And I see that happening over the next few months. And then once we have all of that, we'll give you the whole picture.

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Philip Bowcock, William Hill plc - CEO & Executive Director [7]

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With regards to Casino, the technology stack has been built with the ability to plug-in a casino. So that will be forthcoming.

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Unidentified Analyst, [8]

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(inaudible). Just 2 questions. Firstly, on Retail, you've guided to mid of your GBP 50 million to GBP 70 million range this year. And with all of the closures coming in Q4 and looking forward to next year, is it logical to assume you'll be at the top end of that range? And then secondly, just coming back to the U.S. and Nevada. I hear the fact that the -- there was a very strong comp there. And -- but looking at the cost side, there was quite -- it seems like there's quite a big increase in staff costs. Can you just flesh out a little bit the strategy around Nevada and maybe talk about leakage to other states and so on?

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Nicola Frampton, William Hill plc - MD of UK Retail [9]

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Should I do that?

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Philip Bowcock, William Hill plc - CEO & Executive Director [10]

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You do that.

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Ruth Prior, William Hill plc - CFO & Executive Director [11]

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Yes, we're at the top end of the range next year, we've committed to it. And in terms of Nevada cost, the -- as we expand, particularly the retail part of the business, there is additional cost in Nevada around compliance and technology and that sort of thing. It won't go up much from where it is now.

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Gavin Kelleher, Goodbody Stockbrokers, Research Division - Investment Analyst [12]

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Gavin Kelleher from Goodbody. Just a few for me. Just on Online, and you've obviously guided for revenue growth in the second half. Can you just give us a bit of a flavor for within that, how the U.K. is performing? And how you expect the U.K. to perform and international? And then into next year, how do you expect online to perform? Is there anything we should be aware of there? Obviously, you're now lapping the enhanced due diligence impacts. I know it's always difficult to say, but do you see anything else from a regulatory perspective that we should be aware of headwind wise and online in terms of the measures you're taking?

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Philip Bowcock, William Hill plc - CEO & Executive Director [13]

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I think, we think about the U.K. first. Clearly, there's a lot of work going on around affordability to ensure we are monitoring our customers. And I spoke about the behavior analytics processes we go through, and that will continue. I think that at the moment, the market is growing a -- we should expect broadly mid-single digits growth this year, and I think that would continue to next year as well. I think international will be higher than that, and we should be looking for double-digit growth in international.

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Gavin Kelleher, Goodbody Stockbrokers, Research Division - Investment Analyst [14]

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Perfect. And just on the U.S., obviously, great to get a target of $20 million to $35 million. Can you just give us a bit of a flavor? You said within 3 years, those retail properties, I presume they mature quite quickly because a lot of them obviously in Nevada. So would that be front-end weighted or back-end weighted in terms of when we get there?

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Philip Bowcock, William Hill plc - CEO & Executive Director [15]

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I mean, we've got to have the conversations with Eldorado and the management team there. But in effect, we can go in pretty quickly. But whether we will need to do a fair degree of branding, we need to obviously work out exactly how it's going to work. So I think you should assume that it's going to be a bit more front-end loaded than back-end loaded.

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Gavin Kelleher, Goodbody Stockbrokers, Research Division - Investment Analyst [16]

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Perfect. And just one final one. What sort of impact do you think the Caesars partnership will have on your in Nevada mobile business? Is that something that -- is that -- that's not included in the profit guidance. It's over ...

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Philip Bowcock, William Hill plc - CEO & Executive Director [17]

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No. That's not included in the profit guidance. I mean, it -- we need to -- again, we need to work through the implications of that, but it has to be potential upside.

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Monique Pollard, Citigroup Inc, Research Division - VP [18]

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Monique Pollard from Citi. Three questions, if I could. Just on the Retail, the comments that the majority of the shops will be closed in the Q4. Should we expect them by the end of 2019, all the 700 shops to have been closed? And then in terms of administering the GBP 4 million of synergies on an annualized basis, are they all delivered in the second half of this year rather than any having been delivered in the first half?

And then Ruth and Philip, comments about the potential for a media partnership. What could that mean? And what could we expect to be the benefits of a material media deal in the U.S.?

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Ruth Prior, William Hill plc - CFO & Executive Director [19]

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I take the first 2, you take the last one?

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Philip Bowcock, William Hill plc - CEO & Executive Director [20]

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You do the first 2.

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Ruth Prior, William Hill plc - CFO & Executive Director [21]

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700, yes, by the end of the year. GBP 4 million will be in the second half, and it's an annualized number. And we also, I think, at the time of the acquisition, said we would have a GBP 6 million run rate number, and we would anticipate that, that will be achieved next year.

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Philip Bowcock, William Hill plc - CEO & Executive Director [22]

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I think on the media partnership, we don't believe this is about going out and finding a different brand. This is about access to database. So those media companies that have quite significant databases, and they understand what those customers actually view on television, and consume, but also giving access to media channels as well, be that by pay per view or other media channels, social medial channels that they use. So we will be exploring all the options and making, as I said, the right commercial decision for the long-term business -- value of the business.

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Ruth Prior, William Hill plc - CFO & Executive Director [23]

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Can I add?

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Philip Bowcock, William Hill plc - CEO & Executive Director [24]

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You could add anything you like.

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Ruth Prior, William Hill plc - CFO & Executive Director [25]

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I feel the key thing around in the media partnerships is that we have real confidence about getting a really good one. We have waited this last year to see how the market matured. We've got a really great reputation in the U.S., and we will have a media partnership that really takes us forward.

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Ivor Jones, Peel Hunt LLP, Research Division - Analyst [26]

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Ivor Jones from Peel Hunt. Now that Nicola's nailed on a better profit performance from the Retail business, how does it grow after 2019? I wondered if you might talk about different formats, moving the licenses to bigger shops, becoming arcades, what are the prospects from '20 onwards?

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Nicola Frampton, William Hill plc - MD of UK Retail [27]

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I mean, look. It's still difficult to say. 2019 is still a transition year. We still have to see what's going to happen in the football season. So that will obviously inform what the future performance of the Retail estate looks like in 2020. We're going to take a number of trials in the shops, so [either] looking at different options. Certainly, there's some evolution work that's going on at the moment around our SSBTs that I think will be potentially very interesting. And I think, ultimately, the shop experience is going to have to evolve around experience. What you're seeing in Retail generally, is that the successful ones are the ones that are not just a transactional retailer anymore, but they're more experiential. So that's definitely the direction of travel. But it's really hard to say at this moment in time exactly what 2020, '21 will look like. I mean the guidance that we've given you is based on what we know at the moment and running at 1,568 [shoppers] there as it broadly is at the moment.

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Ivor Jones, Peel Hunt LLP, Research Division - Analyst [28]

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But you're looking at trials now, so you are able to talk about later in the year?

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Nicola Frampton, William Hill plc - MD of UK Retail [29]

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Possibly, yes, yes.

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Ivor Jones, Peel Hunt LLP, Research Division - Analyst [30]

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And on SSBTs, will the U.K. ones be rolled out to the U.S., it was maybe something you'd talked about in the past, and will it matter?

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Ruth Prior, William Hill plc - CFO & Executive Director [31]

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I'll take that one. We are looking at using our SSBTs and also EPOS and the sort of retail front ends in the U.S. because, obviously, there's a great synergy between the 2.

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Philip Bowcock, William Hill plc - CEO & Executive Director [32]

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We're trying to align.

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Ruth Prior, William Hill plc - CFO & Executive Director [33]

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And we're trying to align the front ends across the U.K. and the U.S. That's obviously how we'll get great synergy benefits.

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Ivor Jones, Peel Hunt LLP, Research Division - Analyst [34]

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Do you think it will matter on the revenue line? Are they better performing than the ...

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Ruth Prior, William Hill plc - CFO & Executive Director [35]

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They are definitely better than what's in the U.S. Currently, they would be market leading. Whether they would take the numbers massively forward, I'm not so sure, but they would absolutely underpin our retail credentials.

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Ivor Jones, Peel Hunt LLP, Research Division - Analyst [36]

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Okay. And lastly, talk about the media partnership, Philip. Your slides said exclusive media integration. What does that mean?

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Philip Bowcock, William Hill plc - CEO & Executive Director [37]

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What it effectively means is that we will do a deal with one media partner, and that will allow the integration to take place where we actually integrate our -- some of our technology into their database, so we can actually feed straight off their database where we're allowed to.

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Ivor Jones, Peel Hunt LLP, Research Division - Analyst [38]

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But do you have to be their only betting partner? Or are they your only media partner? Which way is the exclusivity?

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Philip Bowcock, William Hill plc - CEO & Executive Director [39]

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The way it will probably work is they will be our -- they will be -- we will be exclusive to them probably, but we just have to wait and see. And so we need to wait and see.

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Ruth Prior, William Hill plc - CFO & Executive Director [40]

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I think we are still structuring different options, so it's too early to tell.

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Ivor Jones, Peel Hunt LLP, Research Division - Analyst [41]

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But you put the word exclusivity in the slide, so that's important.

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Philip Bowcock, William Hill plc - CEO & Executive Director [42]

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It's important to a degree, but I think we just have to wait and see how it plays through.

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Simon John Davies, Deutsche Bank AG, Research Division - Head of UK Midcap & Online Gaming Research [43]

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Simon Davies from Deutsche. Two from me, please. Firstly, you referred to introducing a reduced threshold for KYC. Is that U.K. or international or both? And is there any cost or can you put a cost related to that?

And secondly, just on Mr. Green. Can you confirm you still expect to deliver a positive return on invested capital from that deal in 2020?

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Philip Bowcock, William Hill plc - CEO & Executive Director [44]

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The answer to the second question is, yes, we're in line with our targets. When it comes to thresholds, there's been no material impact at the moment. This is about actually understanding players' behavior and looking at how people act. So one person's GBP 10 could be another person's GBP 1,000. So this is about actually monitoring people's and players' behavior and when they change behavioral patterns. So multiple credit card deposits, withdrawal -- different types of withdrawal behaviors. We start to interact with them. So at the moment we're interacting, we're touching base with about 6,000 customers a week in various guises. So this is just about trying to make sure we're monitoring those as closely as possible.

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Simon John Davies, Deutsche Bank AG, Research Division - Head of UK Midcap & Online Gaming Research [45]

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Is that U.K. and international?

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Philip Bowcock, William Hill plc - CEO & Executive Director [46]

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That's U.K.

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Richard Paul Stuber, Numis Securities Limited, Research Division - Analyst [47]

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Richard Stuber from Numis. Just 1 question, please. U.S. CapEx, obviously, went up a lot ahead of your launch of your proprietary technology. Any -- how much more of CapEx is there left? Is that a step-up change, one-off change, or should we expect further CapEx as new states roll down?

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Ruth Prior, William Hill plc - CFO & Executive Director [48]

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So I think this year at the Capital Markets Day, we guided for GBP 120 million CapEx for the whole company and still at that level. And that the U.S. would require around $50 million, if you recall. I think one of the points I raised earlier is around future guidance. Obviously, as we grow more quickly, and particularly, if we have more Sportsbooks from Caesars, we will need to just look at that CapEx number. But again, that will be -- I'll come back to you in the round.

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Philip Bowcock, William Hill plc - CEO & Executive Director [49]

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Any more? Over there.

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James Rowland Clark, Barclays Bank PLC, Research Division - Research Analyst [50]

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James Rowland Clark from Barclays. In your release, you talk about a new brand proposition that you're rolling out at the moment, which will improve the sort of customer experience during betting and gaming. So should we be right in thinking that's about improving cross-sell between betting and gaming? And what is cross-sell at the moment? And should we be thinking at all about changes to pricing in the future?

And the second question, just on your marketing models, what are they doing differently now that they weren't doing before? And are the improvements in marketing efficiency sustainable in the future?

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Philip Bowcock, William Hill plc - CEO & Executive Director [51]

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The piece about the brand, it's about having a unified brand proposition across both sports and gaming. This is not about particularly driving cross-sell so much. And I'm afraid I won't be giving the cross-sell number. But -- so this is about actually -- it's, as I said when I presented, it's about actually having a responsible attitude and giving a single view of the industry -- sorry, of William Hill to our customers. From around the marketing efficiency piece, this is just about data, and it's about interrogating data more. It's about getting down to a smaller group of individuals and targeting them more effectively.

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Julian Kenneth Easthope, RBC Capital Markets, LLC, Research Division - Analyst [52]

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It's Julian Easthope from RBC. And you've reached your covenants, or your net debt-to-EBITDA is 2x, which is the upper limit of where you wanted to go to. And you said, you'd actually go through -- you're likely to go through that. Can you sort of give an indication as to how far you're likely to go through that? Were the actual covenants ...

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Philip Bowcock, William Hill plc - CEO & Executive Director [53]

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We haven't broken our covenants yet.

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Julian Kenneth Easthope, RBC Capital Markets, LLC, Research Division - Analyst [54]

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Yes, well, where your covenants come in to play. And does it actually limit you in terms of your potential international expansion?

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Ruth Prior, William Hill plc - CFO & Executive Director [55]

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So I'll take that one or you want to?

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Philip Bowcock, William Hill plc - CEO & Executive Director [56]

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You take it and then I'll follow up.

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Ruth Prior, William Hill plc - CFO & Executive Director [57]

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So our covenant is 2.5x, and it's only on our RCF, and the RCF is not drawn. So our medium-term guidance was 1 to 2x. We do think in our industry that is probably a sensible place to be, we've also guided that we will be above that this year because of the investment in the U.S. and the decline in retail. Now clearly, growth -- the return to growth will help that. We've clearly said that we will underpin the dividend because we believe that we can afford that. We probably will not be doing any bolt-on acquisitions until we're back closer to that range, and all of our capital will be focused on the U.S. And clearly, there are a number of moving parts that I've described earlier that we need to understand and we need to clarify in the next period. But our intention, I know the Board as well, is to get back to that long-term guidance of 1 to 2x. But I'm not going to slavishly get to under 2 if it means that I can't invest in the U.S. if the opportunity is there. But I think we would never want to do something with a 3, if that helps.

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Philip Bowcock, William Hill plc - CEO & Executive Director [58]

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[I'm not having anything done]? Are we done?

Well, ladies and gentlemen, thank you very much indeed, and see you in a few months' time. Thank you.