888 battles UK and Middle East headwinds as FY2022 losses soar

888 has recorded a 74% year-on-year (YoY) rise in full-year 2022 revenue but has seen losses soar as the London-listed firm has laid out five key priorities to develop the business following a tumultuous 12 months.

Group revenue jumped from £712.3m to £1.2bn during 2022, which was principally driven by the acquisition of William Hill International, completed on 1 July.

However, on a pro forma basis, group revenue dipped 3% from £1.9bn to £1.85bn, which 888 noted was as a result of a 20% decline in UK and Ireland online revenue due to additional player safety measures being implemented.

Despite the pro forma dip, the company’s share price had jumped 5.7% in early trading to 65.3p at the time of writing.

UK and Ireland promo forma revenue amounted to £717.4m, with adjusted EBITDA plunging £53.3m.

Additionally, the group’s international business declined 9% on a pro forma basis. The operator once again pointed to regulatory headwinds across a range of markets, most notably its exit from the Netherlands in Q3 2021 as part of the regulation of the market.

The absence of the Netherlands, along with flat growth in core markets of Spain and Italy, saw international pro forma revenue decline 8.6% to £613.7m.

There was a 27% revenue rise in the group’s US business to £20.4m.

Online sports betting revenue fell 24% in 2022 to £363.1m while online gaming revenue dropped 11% to £968m. There was a shining light in the group’s retail operations, with revenue rising 54%, helping to offset difficulties in the online segment.

Looking at pro forma adjusted EBITDA, 888 recorded a 15% YoY rise to £310.6m from 2021’s £269.9m and a corresponding EBITDA margin of 16.8%.

However, pre-tax losses soared, amounting to £115.7m in 2022 compared to a £59m pre-tax profit in 2021.

888 said the significant shift was due to exceptional costs of £184.8m relating to the acquisition of Hills, along with impairment of historic US goodwill and William Hill technology no longer under development.

Pazner’s replacement?

Elsewhere, 888 confirmed it remained in the process of appointing a CEO to succeed the recently departed Itai Pazner. Chair Lord Mendelsohn is currently serving as CEO in an interim capacity.

Mendelsohn said: “We have a very strong operational management team in place, and a board priority right now is the appointment of a permanent CEO. We have been pleased with the depth and calibre of the candidates that we are engaging with and are making good progress with our search.

“We are absolutely committed to appointing a CEO that will lead the team to deliver the potential of this business. The focus of the board is therefore on making the right selection, rather than just making a quick selection,” he added.

Additionally, 888 lifted the lid on the progress with the VIP compliance issues in the Middle East which had impacted the firm. 888 said the board, once fully briefed, had acted quickly to suspend all accounts while the investigation took place.

The investigation has since concluded and 888 confirmed it has started to reopen accounts and expects to recover between 40% and 50% of revenue from that cohort of customers.

Future outlook

Looking ahead, 888 has presented five key pillars for the business which it hopes will deliver group-wide synergies and market expansion.

The first is to integrate the businesses under the group umbrella, with an upgraded target of £150m of pre-tax cost synergies by 2025. This includes the accelerated decision to adopt 888 technology across the group’s brands. Mr Green in Sweden is set to be the first major milestone for this strategy, with a launch expected in the coming months.

Secondly, the group has implemented a new operating model with country-level focus on “core” and “growth” markets and, thirdly, is looking to focus on customer journeys and product.

Elsewhere, 888 has reaffirmed its commitment to safer gambling and its ESG framework, with chief risk officer Harinder Gill overseeing the strategy.

Finally, the firm is looking to prioritise its debt reduction. Group net debt now sits at £1.73bn, with a net debt to EBITDA ratio of 5.6x. Bosses said they expect to bring this ratio down to less than 3.5x by 2025.

888 also said it is continually reviewing its asset base and is considering opportunities to monetise those assets, including the sale of non-core assets. 888 revealed it holds a 19.5% stake in Sports Information Services (SIS), with the supplier currently reviewing strategic options for the business.

Finally, the group also provided a Q1 trading update for its performance in the first three months of the year, which had been impacted by the continuing safer gambling measures in the UK, and the loss in revenue from the Middle East due to the aforementioned VIP troubles.

Pro forma revenue amounted to £446m, down 5% from £469m in Q1 2022, despite a 6% uptick in average monthly active players.

The operator revealed UK and Ireland online revenue fell 9% from £183m to £167m while international revenue decreased by 11%, due in part to lower revenue from the Middle East and the refined focus on “core” and “growth” markets.

888 said it expects 2023 revenue to be lower than in 2022 by a low to mid-single digit percentage, but adjusted EBITDA is anticipated to be much higher, with a margin of at least 20%.