The recent history of Sceptre Leisure, one of the UK’s largest operators and which crashed at the beginning of this year, began in May of 2013 when they secured a £20m funding package from Chenavari Investment Managers.
This was followed in the October of 2013 with the Gauselmann Group of Germany taking a minority shareholding in the company.
In the year leading up to the administration of Sceptre there were several key issues that affected the business but the final one of these was the loss of a major retail supply contract.
This added to already serious pressures on the banking arrangements and inevitably the strict covenants set by Chenavari were unable to be sustained and by the beginning of 2015 it was obvious that a refinancing or restructuring of the business was inevitable, so much so that at the end of January 2015 the board of Sceptre was forced to file its intention to enter administration.
At that time the shareholding of the business was made up of Hillroad Investments, which owned 28 per cent, the CEO Ken Turner with 20 per cent, the Gauselmann Group with a significant minority and numerous other smaller shareholders.
Once the administration process had been started the timelines became very tight and the Gauselmann Group, which was one of those whose shareholding investment had been lost, had a small window in which to try and reach an agreement with the appointed administrator.
On February 11 a deal was agreed and the Gauselmann Group acquired the assets of Sceptre Leisure and the majority of its group companies.
The reasons for the Gauselmann interest in Sceptre go back some time to a strategic partnership that was formed with the company to develop a digital AWP solution for the UK market. With the UK being one of the last major gaming markets to adopt the digital platform, it was seen as a move to help shape the future direction in which the market developed. With the investments already made in the UK and with a stable regulatory framework and an established market it was felt to provide a solid platform for the future.
The company brought in Glynn Mellor, of Trinity Gaming Consultants, who had already worked on several other Gauselmann projects in the UK, to carry out a complete restructuring of the company and prepare it for relaunch with a new management team. It also employed David Purvis, a consultant with considerable experience in gaming machine operations, to assist in customer relationship management - effectively, to talk to the retailers.
Now, four months later, Sceptre is ready for relaunch, with a new name, new managing director, new management structure, new operational framework and an entirely new ethos.
SCEPTRE BECOMES REGAL
Britain’s second largest operator given a relaunch rather than a makeover.
It has been an exercise reminiscent of those fraught stage-acts where someone spins plates on top of bamboo sticks… But the breathless four months between the crash of the UK’s number two operator and its resurrection with an all-new identity, has left its German owners poised to underline their status in the British market in the most positive of ways.
From the moment that Glynn Mellor walked through Sceptre Leisure’s doors in February, he has overseen a wholesale spring-cleaning of the company’s entire framework, top to bottom, leaving something infinitely leaner and fitter to carry the Merkur “sun” into new horizons.
“There was simply too much emphasis on piece numbers and not enough on product viability,” said Mellor. “From the first few meetings it was clear that the fundamentals were good and the management team was both experienced and talented but some help was needed.
“We brought in David Purvis as a consultant to work with the team on the retailer-customer relationships – and David’s experience and knowledge of the industry really paid off on this very important aspect of the change process. He was able to convey the reality of the situation that faced Sceptre but also gave some clarity to the future developments within the group as we set about the restructuring exercise.”
Mellor does not follow the British trend to blame the retailers (the pub-owning chains) for squeezing the prices down below economically-sustainable levels. “The problem is more one of much of the industry’s traditional internal business model being fundamentally flawed.
“Over the years there has been a deterioration in financial arrangements between operators and retailers and the revenue stream derived by the operators has been influenced by the fact that many of them were, by necessity of investment demands, running on high levels of expensive financing arrangements. With a market where piece movement between operators is a frequent occurrence, any potential loss of business for the operator who is highly geared could be disastrous; they would have equipment off-site upon which they were paying bank charges and were therefore prepared to offer lower rents than would normally be the case just to keep the equipment operating and bring in revenue to cover the debt.”
This, says Mellor, was a classic situation which saw many big UK operating names drop out of the industry, merge or otherwise run into financial troubles, as either a direct consequence of these sort of circumstances or after a realisation that the business model was in difficulty… MAM Inn Play, Leisure Link, Gamestec, Sceptre and Claremont, among others, are some of the examples.
This slightly unrealistic situation, which is unlikely to be sustainable into the long term, helped create an unbalanced market. It was further complicated by Britain’s fundamental changes in the way pubs were run, and the industry moved from a relatively balanced managed/tenanted/free market, where investment effectively flowed through to the end life of the product, to one where newly created “pubcos”, the companies owning chains of pubs, became a more dominant feature. With this change in balance came a change in the investment profiles which somewhat threw the previous status quo out of kilter.
“The requirements for a balanced return on investment could never reach the end conclusion,” said Mellor. “You were always buying against an unbalanced business. That has improved a little in recent years, but essentially too much of it remains and adjustments to the overall model has not come quickly enough.”
He sees the arrival on the UK scene of Gauselmann Group and Novomatic from Austria, as a steadying influence. “Neither company is going to invest without being able to see a return on that investment, but both companies do have the wherewithal and the ability to invest where the opportunities are seen to be right for investment.”
Talking to the customers was one of the first jobs, which Mellor and Purvis quickly got down to, with the result that, although the exercise is not yet completed, most of the business has remained intact. “We are still on about 20,000 pieces of equipment,” he said, “with about 9,000 Cat C (AWP) machines. Many of the retailers showed considerable understanding in what was obviously a situation facing most of their suppliers. “We have had many positive discussions with our customers and in most cases a full understanding of the economics of the supply chain are leading to improvements in the terms of supply. We are hopeful that with a continuous process of open dialogue it will lead to a much healthier situation for both customer and supplier as investment conditions improve and innovation of product design can be seen to be rewarding all sides.”
One of the first problems Mellor faced was that much of the money which was moving around in the company on the day it went into administration, belonged to the retailers. “It was their cash and through the process of administration it simply disappeared from the residual Sceptre bank accounts,” said Mellor, “so Gauselmann Group had to effectively repatriate cash into the business.” Changes that have been made to the procedures will prevent this ever being a problem in the future.
He has also been able to avoid redundancies among Sceptre’s workforce, which currently stands at around 400; what small reductions have been made have come through natural wastage. In fact, while the company is still undergoing the early stages of restructuring it has still managed to effect some small improvements in remuneration rates, particularly for front line staff.
Rebuilding and restructuring the company has meant changes in operating practices and realigning roles in the management team to more effectively administer the changes.
REGAL, as its logo will illustrate, will take its place with the other names in Gauselmann’s UK portfolio, Blueprint Gaming, Merkur Machine Sales, Betcom and Praesepe.
The German group now has the second largest operating company in Regal, two cutting-edge development companies in Blueprint and Betcom, its own machine sales company and one of the country’s largest operations of adult gaming centres in Praesepe.
Mark White, the former finance director of Sceptre, is the new managing director of Regal Gaming and Leisure, bringing his knowledge and experience to help cement and develop the new restructured business.
Matthew Bicknell is the new operations director, a long-time employee of Sceptre and previously logistics and product director. Bicknell heads a reorganised service centre network utilising the majority of the former depots, but relocating in Leeds, and in West London new additional service centre facilities have been opened.
He is supported in this role by Lisa Wright as southern operations director. In all there are nine service centres in England, one in Scotland and one in Wales. East is led by an operations manager, supported by a team of service support specialists.
Regal has also appointed the well-known Claire Naylor as customer service director – previously Claire was key accounts director. “These are two appointments which are key to the restructuring of the company,” said Mellor. “To support the service centre teams we have also added some senior support roles in the centre.
“With service being a key word in the ethos of the company we have appointed Roger Lawton as national service manager reporting to Matt Bicknell. Roger’s role is to oversee and continually improve the technical support functions within the company. Roger has a strong track record in the business with both Sceptre and previously Gamestec.
“We have also added a new product manager, Claire Toogood, responsible for the testing and procurement processes in this vital area of the business.”
Claire Naylor’s team has also undergone some significant changes again with customer service at the heart of the business. She still retains the core functions of customer account management with a very experienced team but has added some new roles.
A well-known face in the UK operating business, Fraser Dykes, has been appointed as revenue development director, with a brief to improve the efficiency of asset deployment and optimise revenue generating opportunities. To back this up in the service centres new central planning roles have been introduced to create higher levels of efficiency and release the areas of service centre management to concentrate on front-facing customer service.
“Claire also has a whole new customer compliance department to ensure that Regal is not only meeting its contractual obligations but has a flow of key performance data that provides the constant monitoring of the most important aspects of front line service delivery.” To complete her team Claire has appointed Glyn Buckle as business development director and Greg Blench as multi-site and special projects manager.
Mellor has been careful to hold on to the experience which existed in some quantity at Sceptre… Indeed, there is only one senior introduction into the team, that being Clare Toogood as product manager. “Why change the team?” said Mellor. “Change their focus in the business. The thrust in the past has been geared towards the number of pieces being operated rather than the quality of the business being operated. We now focus on service quality and overall business viability; as much as I would like to I cannot bank numbers of machines.”
Mellor and his new team have started to take out of the newly-named company any business which simply doesn’t make sense. Any unviable business is removed to better balance the estate and strengthen performance in terms of service delivery. “We have brought in regional planners as another level of functionality at regional level to work with the revenue development director to maximise the utilisation of our assets. Each service centre will have a new focus on customer-facing relationships.
“The key word now is service. We have to be the best at providing the core service – without that, nothing else we have put into place will work. As an example engineers had hand-held units, but we have increased the functionality of them to create more visibility about the jobs they are doing and providing on line assistance in fault diagnostics. Collectors are being similarly being equipped with new terminals with increased functionality and it will shortly be extended to the installation crews too.
“We have already seen our service downtime drop and collection frequencies improve.”
The quest for £50
The whole of the UK operating industry constantly re-evaluates what it believes to be a “realistic income” to satisfy the very many variable elements of cost that have to be contended with as a part of every day business.
“A figure of £50 per week average is often quoted as being a benchmark and of course if one was to make a hard and fast calculation based on the known cost elements then this figure would not be too far off the mark,” says Mellor.
“However, life isn't that simple and the mix of investment requirements, service level requirements, responsibilities for fraudulent or criminal losses and damage and of course the levels of time and resource that are required to service the estate effectively all go to build up a series of differing scenarios but if we could find ways of openly debating the real costs associated with providing a first class service with an ongoing and long term investment plan then the figure often quoted would not be far off the mark at the present time.”
In reality Mellor says that the industry - including Regal - are at this time somewhat shy of this figure. “As is the case with all operators, rent lists do have initial rents which are substantially over this figure but it is the life averages that are so important in maintaining a healthy supply chain.
“We need to re-establish an understanding with the retailers which will emphasise that we can help to increase their share of the cashbox by allowing us more ability to invest in new and creative games.”
But will the retailers believe that an uplift in rents or shared income would be used for that purpose? “If we don’t invest in the business – all of us, operators and retailers together – then revenues will fall. There is no question of that. We have to invest money into technology and into innovative game design; to fail to do that is incredibly short-term thinking.”
He sees the gradual switch to digital products as critical to the long-term of the new company and of the industry. Gauselmann’s King of Games range of reprogrammable video-based games, so successful in Europe, are gradually making an impact in the UK, often using software from the group companies, Blueprint and Betcom. “Digital penetration is improving. We might want digital as a platform but we have to prove that there are financial rewards through the cashbox. We are now well on the way with a combination of innovative machine design from Germany and innovative content from a new generation of developers in the UK.”
Regal now offers the new digital product to retailers with enhanced game packages designed by UK developers for UK players. The Regal base in the old Sceptre offices in Bamber Bridge, near Preston, Lancashire, also houses the Kelly’s Eye subsidiary which was a strong contributor for Sceptre and which he now seeks to expand.
Kelly’s Eye supplies lottery equipment, tickets and a whole range of consumables from signage to promotional ideas, from essential marketing aids to branded products. “We want to broaden this offer by expanding the ranges still further, as I believe that it could make a significant contribution to the next few years.”
And what will those years produce for the new-look Regal? From a negative position early in 2015, Gauselmann Group is being promised by Mellor and his team that by the end of the first year a break-even result will be achieved.
“It will move into profit in year two,” said Mellor, “and by the end of year three there should be a level of profitability which will fully justify the investment made by Gauselmann Group.”
The incremental improvements will come hand-in-hand with the increased penetration of the Gauselmann Group digital product into the UK market. Glynn Mellor is predicting that the new-look company is now set for a robust performance. As he put it: “We can only change a market place by performance.”