888 begins long turnaround as merger pains amount to £115m loss

The board of 888 Holdings has vowed to return the business back to shareholder growth by implementing a new corporate strategy prioritising capital efficiencies and debt reductions.    

This morning, the LSE gambling group posted a jam-packed full-year 2022 trading results alongside a Q1 2023 update outlining new corporate measures to optimise its enlarged business incorporating William Hill.

FY2022 group revenues stood in-line with expectations at £1.23bn, reflecting a 74% increase on FY2021 comparatives of £712m, as the enlarged business increased its EBITDA by 82% to £218m (FY2021: £120m).

Despite this growth, adjusted profit before tax declined by 10% to £80.5m due to increased interest costs following the acquisition.

As such FY2022 losses stood at £116 million, accounting for  exceptional costs and adjusting items of £184m, related to the amortization of acquired intangibles, impairment of historic US goodwill, discontinued William Hill technology, transaction fees for the acquisition, and integration and restructuring costs.

SBC News 888 begins long turnaround as merger pains amount to £115m loss
Lord Mendelsohn – 888 Holdings

Lord Mendelsohn, Executive Chair of 888, commented: “The combination with William Hill transformed the Group and brought together two exceptional and complementary businesses to create one of the world’s leading betting and gaming businesses”.

“We have made positive progress with the integration enabling us to upgrade our synergy target from £100m to £150m.”  

Mendelsohn and the board of 888 are progressing in the search for a new CEO, while the CFO will remain in his position until the end of 2023.

An internal investigation into shortcomings with Middle East VIP customers has concluded, with improved policies implemented and no further impacts expected. The company anticipates recovering 40-50% of the affected revenue, resulting in a £25-30 million headwind for FY23. 

No further impacts on UK operations or revenue are expected following the Gambling Commission’s settlement with William Hill due to the company’s strengthened compliance position.

2022 proceedings saw 888 restructure its debt issuances, using new  proceeds to repay its financing package for William Hill, as the enlarged group ended the year with a nominal debt of £1.8bn.

“In 2023 we remain on track to deliver higher profitability as we deliver against our clear strategic priorities,” Mendelsohn concluded.

Our clear priorities of integration, market focus, and deleveraging give us confidence in our 2025 targets, as we build a stronger and more sustainable business for the future.”

New Strategic Vision to lead Group Turnaround 

Moving forward, 888 governance has outlined five new operational and strategic priorities which the company will focus on from 2023 onwards, targeting £150m in pre-tax cost synergies by 2025.

A focus on ‘select markets and key growth opportunities’ will see 888 implement a new operating model to maximise growth in newly regulated markets, through the key launches of  888 in Ontario (Canada) and SI Sportsbook in Virginia and Michigan.

In addition, 888 will proceed with an increased strategic investment in 888AFRICA joint venture, will provide a growth platform for regulated African markets and reach over 500k customers.

Within mature markets such as the UK and Western Europe, 888 will invest to “secure a sustainable competitive advantage” launching new group-wide innovations and with heritage brands “focused on customer excellence through our “brilliant basics” programme”.

Debt reduction remains a priority, with a focus on capital efficiency, establishing a strong long-term debt structure, and deleveraging through EBITDA growth. 

The company continually reviews its asset base and considers monetizing non-core assets, including the recent sale and leaseback of £10 million freehold properties in Q1-23, and reviewing its stake in SIS (Sports Information Services).

To chip away at this £1.8bn in debt, 888 has placed confidence in EBITDA growth as a key driver of its recovery for the remainder of 2023, expecting free cash flow generation to ‘pick up’ from 2024.

Finally, the firm has prioritised continued investment in sustainability and ESG initiatives through its ‘Player People Planet’ framework, naming Harinder Gill as Chief Risk Officer and developing safer gambling policies, practices and employee engagement and training.

Group Confidence on 2025 Targets 

Closing its accounts, the 888 board targets a low to mid single-digit % decrease in FY2023 revenues compared to 2022 results. However, it expects a significantly higher Adjusted EBITDA as the company focuses on building sustainable revenues, with an Adjusted EBITDA margin of at least 20%.

The Board remains confident in achieving its 2025 targets, including at least “£2bn in revenue, an Adjusted EBITDA margin of at least 23%, more than 35p of Adjusted EPS, and adjusted net debt to EBITDA below 3.5x.”

Group optimism is driven by the “strong progress in realising synergies and the effective implementation of the new market focus plan following the acquisition of William Hill.”

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