888 Holdings Corporation is poised for a global rebranding initiative, ushering in a new era of strategy and innovation, despite grappling with net losses over the past biennium.
In the fiscal year of 2023, 888 Holdings witnessed a surge in adjusted EBITDA to £308.3 million ($390.4 million/€359.6 million) from £217.9 million in 2022. Annual revenue soared to £1.70 billion, marking a notable increase from £1.24 billion in the preceding year. However, the company recorded a net loss of £56.4 million, a significant improvement from £120.5 million in 2022. Basic loss per share from continuing operations decreased by half to £0.126 from £0.283 in 2022.
888's 2023 Financial Performance Analysis
Despite witnessing an increase in revenue and adjusted profit compared to 2022, the company experienced a 25% decline in adjusted profit after tax, amounting to £48.1 million.
The FY23 performance, deemed "disappointing" by the company, remained consistent with data released in January 2024 post-market closure. During this period, 888 announced staff reductions aimed at enhancing performance, although specific departmental impacts were not disclosed.
The holding's revenue surged to £1.70 billion, a 38% increase compared to 2022 on a non-core basis. This growth was facilitated by a strategic shift away from dot-com markets and alterations in the UK clientele due to regulatory measures.
Marketing expenses witnessed a significant decrease, plummeting nearly £20 million from £257.8 million in 2022 to £237.6 million in 2023.
However, operating expenses nearly doubled from £448.5 million in 2022 to £819.1 million in 2023. Nonetheless, the company managed to report an operating profit of £33.0 million in 2023, marking a significant improvement from the £4.8 million loss in 2022.
The adjusted EBITDA margin for FY23 stood at 18.0%, aligning with the previously projected range of 18%-19% in the January trading update. This figure also exhibited growth, increasing by 1.2% compared to 16.8% in FY22. 888 attributes these changes to enhanced profitability and a refocused approach towards impactful marketing expenditures, which offset the negative effects associated with shifts in the dot-com market.
The company reported a cash (income) balance, excluding customer account balances, of £128 million as of December 31, 2023. Coupled with an undrawn revolving credit facility (RCF) of £150 million, 888 boasts a total liquidity of nearly £278 million.
Net debt experienced a slight reduction to £1.7 billion, partly attributed to favorable exchange rate movements. Overall, these factors contributed to an adjusted net debt/EBITDA ratio of 5.6x, demonstrating stability compared to the previous year.
Market Performance Overview
The UK and Ireland customer segment remains the primary revenue source for the 888 group, experiencing substantial growth to £658.5 million from £455.5 million in 2022. Adjusted EBITDA also doubled from £61.6 million in 2022 to £152.3 million in 2023.
Despite encountering challenges, the UK accounted for 81.5% of adjusted EBITDA, underscoring its significance to the group. A strategic financial review indicates potential for improved performance in the UK segment in the upcoming year.
Moreover, 888 anticipates the UK's adoption of a more sustainable gambling approach, as outlined in the White Paper, to foster long-term industry stability. This shift is expected to restructure income dynamics in the British market, prioritizing lower rates and higher margins. Despite an 11.3% decrease in rates, the net winning margin increased from 10.8% to 12.1%.
In the international business sphere, 888 witnessed significant revenue growth, reaching £517.4 million compared to £508.3 million in 2022. Despite regulatory challenges in dot-com markets, Spain and Italy experienced double-digit growth.
The company's earnings report suggests potential exits from unprofitable markets or asset monetization through alternative operating models like local partnerships. In line with its decision to withdraw from the US market, the company wrote off £28.1 million to establish a new US-focused platform.
Retail revenues surged to £535 million in 2023, attributed to robust fundamentals bolstered by enhanced product offerings through fresh investments. This growth offset a 3% decline in asset size throughout the year.
From 888 to Evoke plc: A Strategic Rebranding
In an unexpected turn of events, 888 management has decided to undergo a rebranding initiative, transforming into Evoke plc. The proposal awaits majority approval at the upcoming 888 AGM. According to the company, this change aims to better embody the strength of the group's multi-brand operating model.
The rebranding proposal was unveiled at the close of March, forming part of a new strategy geared towards profit maximization. This decision coincides with the appointment of Per Widerström as the new CEO of 888, following his successful tenure as CEO of Fortuna Entertainment Group's Central and Eastern European business, which concluded in 2022. With 17 years of managerial experience, Widerström has previously served in prominent roles for renowned operators such as Bwin.party and Gala Coral Interactive.
Widerström expressed his enthusiasm, stating, "It is incredibly exciting to announce our revenue growth plans, success strategy, new financial goals, and new corporate identity. Today marks the beginning of a new period of prosperity for this business."
888's revamped strategy will encompass six key initiatives, each aligned with a clear vision for success and a strategy for its realization. Among these initiatives is the pivotal rebranding to Evoke plc, signaling a strategic shift towards achieving corporate objectives.
New 888 Value Creation Plan Unveiled
888 has announced its latest strategic initiative, the "Value Creation Plan" (VCP), spearheaded by CEO Widerström and senior management. This plan is envisaged to serve as a blueprint for long-term success.
As part of the VCP, 888 has undertaken a comprehensive overhaul of its operating model, aiming to achieve annual cost reductions of approximately £30 million. With a clear vision and strategy for success, the company is rolling out six strategic initiatives designed to enhance operational efficiency and unlock new value.
A simplified market approach will be adopted, comprising two categories: key markets and market optimization. Key markets such as the UK, Italy, Spain, and Denmark will witness scaling efforts to maintain a dominant market position. Market optimization will involve concentrated investments aimed at generating high returns and maximizing cash flow across all markets.
Concurrently, a strategic review of US B2C businesses has been initiated in the first quarter of 2024, exploring potential cost-saving opportunities. 888 has also hinted at the possibility of divesting its US B2C business. The company aims to achieve new medium-term targets for a high return on equity, coupled with sustainable profit growth of 5-9% annually.
Efficiency enhancements and margin improvement are also on the agenda, with plans to boost adjusted EBITDA margins by 100 basis points annually. Furthermore, capital allocation will be disciplined to ensure leverage remains below 3.5x by the end of 2026.
Current Situation and CEO Forecast
Despite acknowledging the company's "disappointing" performance at the shareholders' meeting, CEO Widerström remains steadfast in his commitment to enhancing business performance.
"It's incredibly exciting to announce our 'Value Plan' - our strategy for success, our new financial goals, and our new corporate identity," remarked the CEO.
Widerström expressed his confidence in the company's potential for long-term success, citing leading positions in growth markets with formidable barriers to entry, robust proprietary technologies, a stellar management team, and globally recognized betting and gaming brands.
Revenue projections for the first quarter of 2024 range between £420 million and £430 million, with the company targeting a revenue growth of 5-9% for the year. Additionally, 888 aims to reduce leverage to below 3.5x by the end of 2026, equivalent to a debt reduction of £650 million. The company also aims to increase its adjusted EBITDA margin by 100 basis points annually.
This forecast presents a fairly ambitious goal, as it entails revenue and profitability growth alongside leverage reduction. Moreover, 888 will refrain from paying dividends until leverage falls below 3x. However, with the target set at 3.5x by the end of 2026, investors may need to exercise patience.
