In spite of the continued loss in net income for the FY23, 888 Holdings will unveil a major brand rebrand and a new plan.
888 Holdings has reported an adjusted EBITDA totaling PS308.3m ($390.4m/EUR359.6m), compared to PS217.9m for FY2022.
The company’s revenue for the year was PS1,70bn, compared with PS1.24bn last year. The company’s net loss in 2018 was PS56.4m, compared with PS120.5m for 2022. The basic loss per share of continuing operations was halved from PS0.283 to PS0.126.
Summary of the earnings for 888 in 2023
Although revenue and earnings adjusted for inflation were higher than in 2022, the adjusted profit was 25% lower at PS48.1m.
The company’s performance in FY23 was on par with the January 2024 post-close trading update, despite the “disappointing” numbers. The company had announced at the time a number of layoffs that it claimed would assist it in achieving its long-term goals. The company did not reveal which departments would be affected.
Total revenue was PS1,70bn (up 38% on a pro forma basis from 2022). The shift was due to a proactive move away from the dotcom market and changes in customer mix as a result “additional gaming measures” in UK.
The marketing costs also decreased significantly, from PS257.8m to PS237.6m.
However, operating expenses almost doubled from PS448.5m to PS819.1m by 2023. Operating profit was still a positive note in the balance sheet despite this change. The group’s operating profit in 2023 was PS33.0m, compared to a loss for 2022 of PS4.8m.
The adjusted EBITDA margin in FY23 was 18.0%. The range previously stated in the January trading update was 18%-19%. It was up 1.2% from the 16.8% of FY22. This was attributed by 888 to increased profitability, and a focus on marketing spending that yields higher returns. It says that this has more than compensated for the dotcom changes.
As of December 31, 2023, cash excluding balances with customers was PS128m. With a revolving loan facility of PS150m and a cash balance of PS128m the total liquid assets of the company were close to PS278m.
The net debt fell to a little over PS1.7bn. Partly, this was due to favorable FX fluctuations. This resulted, in total, in an adjusted Net Debt/EBITDA Ratio of 5.6x. It was stable from year to year.
Market performance
UK and Ireland remains the main revenue source for the group. This segment’s revenue was significantly higher, at PS658.5m compared with PS455.5m for 2022. The adjusted EBITDA doubled, from PS61.6m to PS152.3m.
Even after all the struggles of the group, UK still accounts for 81.5% adjusted EBITDA. It is likely that the negative effects of the new strategy are already being felt. This means the UK results for the group will improve in the coming year.
The industry as a whole is likely to hope that an approach more sustainable in the UK will be viable on a long-term basis. The UK market has changed its revenue mix, with plans for a focus on lower stakes, high margin customers. The stakes also decreased by 11.3%. However, this was offset by a rise in the betting net winning margin. It increased from 10.8% up to 12.1%.
In terms of its international operations, the revenue for 2018 was PS517.4m, up from PS508m in 2022. The segment was affected by changes to compliance in the dotcom market, but it saw double-digit increases in Spain and Italy.
According to the earnings report of 888, it is expected that 888 will exit markets which are not profitable or use alternative models for operating, like local partnerships, in order to monetize its assets. In addition to its decision of exiting the US market the company also wrote off PS28.1m on its balance sheet. This was for construction of a US-facing platform.
In 2023, retail revenue also increased significantly to PS535m. This was attributed by 888 to an improved product range and strong performance derived from new investments. The operator claimed that this performance more than compensated for a reduction of 3% in the size of the estate during the past year.
Invoking a New Era
The unexpected happened: 888 will also rebrand as Evoke plc. The approval of shareholders at the next AGM will determine whether this happens. This will, according to 888, “better represent the strength of 888’s multibrand operating model”.
This morning, 888 announced the rebranding proposal on its earnings call. It was described as part of a strategy for improving profits.
Per Widerstrom, the new CEO, joined 888 in August after serving eight years as CEO for Fortuna Entertainment Group. In 2022, he stepped down as CEO.
Widerstrom has worked as an executive for several operators over the course of a 17-year career. These brands include Bwin.party, Gala Coral Interactive and other high-profile ones.
It is an incredible thrill to be able to share our Value Creation Plan and Strategy for Success, as well as our updated financial goals and new corporate image. Widerstrom said that today marks a new exciting dawn in the business.
The “new framework for 888” will include a “clear vision of success and a strategy to achieve it”. The “new strategic framework” will consist of six initiatives, and may include a rebranding as Evoke.
“New Value Creation Plan
This morning, the company announced its Value Creation Plan. Widerstrom, along with the senior leadership of Widerstrom’s company will deploy this plan in order to develop a “long-term strategy for success”.
The operating model of the group has been reset as part of 888 VCP. As part of 888’s VCP, the group plans to achieve an additional PS30m in annual savings.
Six strategic initiatives will be announced by the company with a “clear picture of success and a strategy for getting there”. They will be used to “drive operational excellence” and prepare for a step-change in value creation.
A simplified approach to the market will be implemented, consisting of two categories. First, there will be the core markets, which are UK, Italy, Spain, and Denmark, with their in-country market scales and leading positions. In the second phase, optimising markets, there will be a stronger focus on investment, whereby the group “generates strong returns, while maximising cash flow from all markets”.
The strategic review of US B2C operations, which was initiated in the first quarter 2024, will take into account the potential cost-savings. In the first month of this year, 888 revealed that it may sell its US B2C business. The new targets will be based on a “high return of equity” and 888 has set them in numbers. The target will be a sustainable profit growth rate of between 5% and 9%.
The group will aim to increase efficiency by increasing the adjusted EBITDA of 100 basis points annually. The group also aims to have a more disciplined approach in capital allocation with a leverage below 3.5x at the end of 2020.
The CEO’s view on current trading and the outlook
Widerstrom, on the earnings call this morning, categorised the earnings of the company as “disappointing”. However he is still optimistic about the future.
He said: “It’s incredibly exciting for us to be able to share our Value Creation Plan and strategy, as well as our financial goals, with our corporate identity. Today marks the dawn of a new exciting era for our business.
I firmly believe the group has now all of the ingredients necessary for success over the long term: Leading positions in markets that are growing and have high barriers to entry, powerful proprietary technologies, a management team with a world-class reputation and the most popular betting and gaming brands around the globe.
The company targets a 5-9% revenue increase in 2024. Revenue for the first quarter of 2024 is expected to range between PS420m-PS430m. By the end of 2020, 888 wants to reduce its leverage below 3.5x. It is equivalent to the company reducing its debt by PS650m. This will require that it also grow its EBITDA adjusted margin by 100 basis point per year.
It is likely that this is an ambitious goal, as 888 wants to improve revenue and profits while reducing its leverage. It is also worth noting that 888 won’t pay out a dividend until its leverage falls below 3x. Investors will have to wait a long time, however, as the goal is to reach 3.5x leverage by 2026.
