888 Outlines New Targets
Author:
Muhammad Gregory
888 Holdings has outlined its newly updated strategy at its Capital Markets Day. It announced plans to slash a portion of its ￡1.6 billion debt, accrued during the acquisition of William Hill’s non-US assets. By 2025, it aims to increase revenues to above ￡2 billion, by cutting net debt and focusing on its core markets.
The newly enlarged operator plans to reduce debts acquired during its takeover of William Hill’s international assets. ?Scott Graham/Unsplash
Acquisition Completed
888 Holdings has launched its updated strategy for sustainable value creation at its Capital Markets Day. The leading betting and gaming operator has outlined a plan focused on delivering shareholder returns through rapid deleveraging and improved profit margins.
On November 29th, 888 Holdings held a Capital Markets Day in London. Members of the operator’s executive leadership team fronted a series of presentations outlining the group’s updated strategy and priorities. Topics under discussion included key growth opportunities, financial targets and an update on anticipated cost synergies, following the successful acquisition of rival sportsbook William Hill’s non-US assets.
888 Holdings completed its purchase of William Hill’s international assets from Caesars Entertainment in July. As part of the ￡2 billion takeover, it gained the heritage bookmaker’s high-street betting shops, as well as online brand Mr Green. As a result of the acquisition, 888 Holdings is now considered one of the largest combined betting and gaming operators in the world.
Following the enlargement of its operations, 888 Holdings faces a number of new operating challenges. These include increased levels of debt, higher interest rates and growth rates in active markets. The operator has presented a series of new financial targets for 2025, as it adjusts to these challenges.
It aims to generate revenue of above ￡2 billion, by refining its strategic focus on a smaller number of key markets. It has set targets to enhance its market share and create sustainable long-term market leadership positions. The gambling operator has also adjusted its EBITDA margin above 23%, with a focus on building scalability into the group’s model. It will take advantage of unified proprietary technology to raise profit margins.
888 Holdings also adjusted its net debt / EBITDA to less than 3.5x. It hopes to reach this by adopting a highly disciplined approach to capital allocation. Similarly, it is adjusting to an EPS of at least 35p to deliver benefits from the enlarged group.
Challenging Conditions
888 Holdings took the opportunity to announce both an acceleration and increase in anticipated cost synergies. It has raised its pre-tax cost synergy target to around ￡150 million, up from ￡100 million. Approximately ￡34 million of this is expected to be on capital expenditure related synergies. Delivery has been hastened with around ￡87 million operating cost synergies projected to be achieved in 2023.
Members of 888 Holdings’ leadership team presented a strategic roadmap reflecting the group’s recent acquisition of William Hill’s non-US assets. Now one of the world’s leading betting and gaming groups, it boasts significantly increased scale, more diverse revenues and a greater portion of regulated and taxed revenues.
While the acquisition has strengthened the group’s positions across core markets in the UK, Italy and Spain, and provided it with a larger combined talent pool, it has presented a new set of challenges. Macroeconomic conditions including the increasing cost of energy and interest rate hikes are creating a more complex operating environment.
Coupled with looming regulatory changes in the UK, 888 Holdings has much to contend with. Due to the structure of the William Hill purchase, the group’s net debt is higher than initially anticipated when the acquisition was first announced. As a result, the group is more exposed to changes in interest rates and is impeded in its ability to reinvest excess cash flow in the short term.
Growth rates across 888 Holdings’ core online markets have moderated. The coronavirus pandemic saw increased interest in e-commerce and digital entertainment. Meanwhile, lockdowns saw footfall on the high-street grind to a halt. While the group benefitted from increased online activity, the trend is now levelling. The group is now focused on readjusting its cost base.
Revenues On Target
888 Holdings’ roadmap is based around key three phases. 2022 marks the first phase, Position. Next year, the group will commence the next phase, Plan. This phase will involve streamlining the business, with integration to a single global technology platform. From 2025 onwards, the group will enter its Potential phase, in which it aims to deliver long-term sustainable growth.
The group outlined its framework to drive improved shareholder returns, setting a 2025 target of at 35p of adjusted EPS. To reach this, it will hone its focus on a select number of the most globally attractive markets. Other factors in play include adjusted EBITDA margin, debt reduction and debt optimization.
Since its Q3 trading update, published in October, the Gibraltar-based group has continued to trade in line with board expectations. Revenues for the first nine months of 2022 came in at ￡1,393 million. For the full year, proforma revenue is projected at approximately ￡1.85 billion. Q4 EBITDA is expected to range between ￡88 million and ￡98 million.
Commenting on Capital Markets Day, CEO of 888 Holdings Itai Pazner explained the group’s strategic direction and priorities. The newly enlarged business has great scope for improving its operating model and delivering efficiencies. Over the next two years, 888 Holdings plans to fully integrate the business. Pazner continued:
“We are focused on building a customer-led business with a portfolio of world class brands that provide complementary offerings, supporting our ambitions to drive market share growth in some of the most attractive betting and gaming markets in the world. This will be enabled by a scalable, unified proprietary technology stack that will underpin our product and content leadership focus.”
Pazner added that the group’s long-term potential remains exciting. Building on its unified tech platform will grant 888 Holdings future growth opportunities, benefitting its portfolio of world class brands and products for the next decade of growth.
