888 looking to combat operational, growth & interest rates challenges

William Hill

888 has asserted that the group’s long-term potential “remains exciting,” despite encountering a series of struggles following the $730m purchase of William Hill International.

The company has said that moves to combat moderating growth rates, exposure to higher interest rates and an increasingly challenging operational environment must be undertaken, ahead of a Capital Markets Day that will be held in London today.

Following the aforementioned acquisition in September 2021, 888 elaborated on a number of “material external changes” that have been encountered and that it noted must be addressed.

Regarding the latter of those William Hill related struggles facing the firm, higher inflation and interest rates as well as rising energy costs were cited on a global basis, with the potential of regulatory changes in the UK a further obstacle.

Furthermore, 888 also elaborated on “net debt being higher than was anticipated when the acquisition was initially announced,” which it added has “left the group more exposed to changes in interest rates”.

In total, 36 per cent of this gross debut is fixed while 64 per cent has floating rates, which has impacted its ability to reinvest in accelerating growth in the short term.

During the immediate period that lies ahead, 888 acknowledged that it may look to access debt capital markets, using proceeds to repay up to £347m of bank loans.

888 is also looking to readjust the cost base and its priorities to reflect the wider market environment, with it noted that online growth has moderated following the heighted activity, and increased costs to manage greater play numbers, witnessed during the COVID-19 pandemic. 

Regarding current trading, the firm said that it has “continued to trade broadly in line with board expectations” since a previous update was offered last month.

“Today we set out our approach to unlocking the significant benefits of the combination”

For the full year, the group expects revenue of approximately £1.85bn and adjusted EBITDA in the range of £305m-£315m. 

Q4 2022 adjusted EBITDA is expected to be in the range of £88m-£98m, which, 888 said, reflects “significant cost mitigation actions” being taken during H2 as well as the successful delivery of initial synergies. In 2023, the group expects an Adjusted EBITDA margin of at least 20 per cent.

Alongside an outlook for the current year, a series of financial targets for 2025 have also been touched upon by the online gambling group.

Revenue is anticipated to exceed £3bn while adjusted EBITDA margin is anticipated to rise above 23 percent. An “extremely disciplined approach to capital allocation” is also expected to achieve net debt/EBITDA of 3.5x by the close of 2025.

“Today we set out our approach to unlocking the significant benefits of the combination of 888 and William Hill and I am pleased to share a more detailed view of our strategic direction and priorities,” explained Itai Pazner, CEO of 888.

“As a newly combined business we have significant scope for improving our operating model and delivering efficiencies. Over the next two years we plan to fully integrate our business – creating a bigger, stronger and better organisation with higher profit margins. 

“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.

“While our financial leverage is currently higher than our mid-term target, our streamlined operations and capital discipline will give us a clear path to deleverage to less than 3.5x by the end of 2025.

“Our long-term potential remains exciting. Building our unified tech platform will present us with real future growth opportunities as we take advantage of our world class brands, product and content leadership, and customer excellence to set our business for the next decade of growth.”